notes to the consolidated financial statements … annual report 2006 mapfre re • notes to the...

Notes to the consolidated financial statements financial year 2006

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Consolidated annual report 2006

1.General information on the company and its activityMAPFRE RE, Compañía de Reaseguros S.A. (hereinafter, the controlling Company) is a

reinsurance company, parent to a number of subsidiaries engaged in reinsurance activities.

The controlling Company is, in turn, subsidiary of MAPFRE, S.A. and forms part of the MAPFRE

GROUP, consisting of CARTERA MAPFRE S.L. Sociedad Unipersonal, MAPFRE, S.A. and several

companies engaged in insurance, financial, securities, property and services activities.

The controlling Company has its headquarters located in Madrid, having also four branch offices

and ten representative offices, with direct presence in sixteen countries. Its geographical scope

includes Spain, European Union countries and third countries, mainly in Latin America, and its

activity embraces all reinsurance business types and lines.

The controlling Company was incorporated in Spain, its registered office being in Madrid, Paseo

de Recoletos nº. 25.

The consolidated annual accounts have been issued by the Board of Directors on 21 February

2007. They are expected to be approved by the General Shareholders Meeting. The Spanish

regulations envisage the possibility of modifying the annual accounts in the event they were not

approved by the said governance body, albeit such a situation has never arisen in the life of the

controlling Company.

2. Bases of presentation of the consolidated financial statementsThe Group’s annual consolidated financial statements have been prepared in accordance with

the International Financial Reporting Standards (IFRS) in force on the closing date as adopted

by the European Union, with all companies having carried out the required standardisation

adjustments

The consolidated financial statements have been prepared under the historical cost convention,

except for available-for-sale financial assets, for trading financial assets and for derivative

financial instruments, which have been recorded at fair value.

The Group has decided to capitalise the interest costs directly attributable to the acquisition of

qualifying assets, which therefore become part of the costs of the said assets.

Rules and interpretations that have been approved by the European Commission but that were

not been enforced as at the closing date of financial year 2006 have not been adopted, in particular

as regards IFRS 7 relating to the information and breakdowns of financial instruments, and the

amendments to IFRS 4 corresponding to insurance contracts, which have been introduced by

Regulation 108/2006 of the Commission. These variations do not have any impact on the Group’s

financial situation and consolidated results.

REPORTING BY SEGMENTS

The controlling Company voluntarily includes in its annual accounts financial information by

segments for both business activities and geographical areas.

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ANNUAL REPORT 2006 MAPFRE RE • NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL YEAR 2006

The main segments per business line are Reinsurance Life and Reinsurance Non Life. The

geographical segments are: Spain, other EU countries, America, and rest of the world.

ERRORS

No errors have been detected in the consolidated financial statements of previous years.

COMPARISON OF INFORMATION

There are no reasons preventing the comparison of the balances and amounts of this financial

year as they appear in the financial statements with those of the preceding year.

In the preparation of the consolidated financial statements, the international standards that,

having been approved by the European Commission, were in force as at the year’s balance sheet

date, have been applied.

CHANGES IN THE CONSOLIDATION PERIMETER

Appendix 1 identifies the companies that were incorporated into and changes occurred in the

consolidation perimeter in 2005 and 2006, together with details on their equity and results. In

addition, Appendix 1 provides a detail of other changes occurred in the consolidation perimeter.

The overall effect of these changes on the consolidatable Group’s equity, financial situation and

results in 2005 and 2006 with respect to the preceding year is described in the relevant notes of

the consolidated report.

ACCOUNTING JUDGEMENTS AND ESTIMATES

In the preparation of the consolidated financial statements under IFRS, the controlling

Company’s Board of Directors has made judgements and estimates based on assumptions on

the future and on uncertainties that basically refer to:

° Losses from impairment of certain assets.

° The assumptions used in the actuarial calculation of liabilities and post-employment

remuneration related commitments.

° The useful life of intangible assets and of elements of property, plant and equipment.

° The fair value of certain unlisted assets.

Estimates and assumptions used are regularly reviewed and are based on the historical

experience and other factors that may have been considered as more reasonable from time

to time. If a change in the estimates took place in a given period, as a consequence of these

reviews, its effect would apply to that period and, if applicable, to successive periods.

3. CONSOLIDATION

3.1 SUBSIDIARIES AND ASSOCIATED UNDERTAKINGS

Subsidiaries and associated undertakings included in the consolidation are detailed in the table of

shareholdings forming an integral part of these notes to the financial statements as Appendix 1.

The configuration of companies as subsidiaries is determined by the controlling Company

holding a majority of the voting rights, directly or through subsidiaries, or, even if not holding half

of the said rights, if the controlling Company is able to manage the said companies’ financial and

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operating policies in order to obtain profits from their activities. Subsidiaries are consolidated

from the date when the Group acquires control, and are excluded from the consolidation on the

date when it ceases in such control; therefore, the results relating to the part of the financial

year while the said entities belong to the Group are included in the financial statements.

Associated undertakings are those where the controlling Company exercises a significant

influence, albeit they are neither controlled companies nor joint ventures.

Significant influence means the power of intervening in the investee company’s decisions on

financial and operating policies, however without achieving control or joint control over the said

policies. A significant influence is assumed to be exercised when the Company holds, either directly

or indirectly through its subsidiaries, at least 20% in the investee company’s voting rights.

Shareholdings in associated undertakings are consolidated by the equity method, with the value

of the shareholding including the net goodwill identified on the acquisition date.

When the Group’s participation in the losses of an associated undertaking is equal to or higher

than the book value of its stake, including any unsecured receivable, the Group does not register

additional losses, unless obligations have been incurred or payments have been made on behalf

of the associated undertaking.

In order to determine whether an investee is a subsidiary or an associated undertaking, account

has been taken of both the potential voting rights held and liable of exercise, and the call

options on shares, debt instruments convertible into shares or other instruments entailing the

possibility of increasing or reducing voting rights.

Excluded from being considered as subsidiaries and associated undertakings are the

investments made in investment funds and similar undertakings.

The financial statements of subsidiaries and associated undertakings used for the consolidation

are those relating to the financial years closed as at 31 December 2006 and 2005.

3.2 TRANSLATION OF FINANCIAL STATEMENTS OF FOREIGN COMPANIES INCLUDED IN THE CONSOLIDATION

The functional and presentation currency of the MAPFRE GROUP is the Euro, therefore the

balances and transactions of Group companies whose functional currency is not the Euro

and that do not operate in an hyperinflationary economy are translated into Euros using the

exchange rate at the balance sheet date.

The exchange differences resulting from applying the above procedure, as well as those arising

from the translation of loans and other foreign currency instruments covering investments in

foreign operations, have been recorded as a separate component of assets in the account “Forex

translation differences”, deducting the part of the said difference corresponding to minority

shareholders.

Goodwill and fair value adjustments of assets and liabilities arising from the acquisition of Group

companies whose currency is not the Euro are dealt with as assets and liabilities of foreign

operations, stating them in the functional currency of the foreign undertaking and translating

them using the exchange rate at the balance sheet date.

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Adjustments to the opening balanceThe columns of adjustments to the opening balance appearing in the various tables of these

notes to the annual consolidated financial statements include the changes occurred as a result

of changes in the consolidation method or procedure applied, and of the application of a different

exchange rate for the translation of figures corresponding to overseas subsidiaries.

Variations in the technical provisions recorded on the income statement differ from those obtai-

ned by difference in the balance sheet balances of the present and previous financial year, as a

result of the application of a different exchange rate for the translation of figures in the case of

overseas subsidiaries.

4. Earnings per share and dividends

4.1 EARNINGS PER SHARE

The calculation of the basic earnings per share, which coincides with the diluted earnings per

share, there being no dilutive potential ordinary shares, is shown below:

2006 2005

Net earnings attributable to the controlling Company’s shareholders (EUR 000s)

77,172 32,269

Weighted average number of ordinary shares in issue (thousands) 72,231 70,529

Basic earnings per share (Euros) 1.07 0.46

The weighted average number of ordinary shares in issue in 2005 was affected by the capital

increase carried out in August 2005.

4.2 DIVIDENDS

The following table details the controlling Company’s dividends in the last two financial years:

Concept2006 2005

Total Amount per share Total Amount per share

Interim dividend 31,781,669.92 0.44 25,280,873.80 0.35

Comp dividend 2,889,242.72 0.04 5,056,174.76 0.07

TOTAL 34,670,912.64 0.48 30,337,048.56 0.42(Amounts in Euros)

The dividend for financial year 2006 has been proposed by the Board of Directors and is pending

approval by the Ordinary General Shareholders Meeting.

The planned dividend pay-out complies with the requirements and limitations that are laid down

in the legal regulations and in the Company’s bylaws.

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The Board of Directors has prepared the cash statement for the distribution in financial years

2006 and 2005, respectively, as follows:

Concept Date of interim dividends01/12/ 2006

Date of interim dividends01/12/ 2005

CASH AVAILABLE ON THE DATE OF THE RESOLUTION 17,269 25,783

INCREASES IN CASH FORECAST WITHIN ONE YEAR

(+) From expected current collection transactions 345,000 355,000

(+) From expected financial transactions 60,000

DECREASES IN CASH FORECAST WITHIN ONE YEAR

(-) From expected current collection transactions (160,000) (163,000)

(-) From expected financial transactions (180,000) (250,000)

CASH AVAILABLE WITHIN ONE YEAR 22,269 27,783

5. Accounting policiesThe accounting policies applied in relation to the following items are shown below:

5.1 INTANGIBLE ASSETS

Goodwill

GOODWILL ON CONSOLIDATION

Goodwill on consolidation represents the excess of the cost of acquisition over the fair value

of the stake in the controlled company’s equity on the acquisition date, except for acquisitions

made prior to 1 January 2004, where it corresponds to the goodwill, net of amortisation,

recorded pursuant to the Spanish regulations applying on the said date. In the case of

acquisition of stakes in the controlled company from minority shareholders subsequently to the

initial one, the controlling Company has decided to recognise the said excess as greater goodwill

on consolidation.

IMPAIRMENT OF GOODWILL

After its initial recognition and allocation to a cash generating unit, its possible loss in value

is assessed at least once a year. When the recoverable value of the said cash generating unit

is lower than its net book value, the corresponding loss in value is immediately recognised

in the income statement, and generally no loss is recognised for individual assets not having

experienced any impairment.

OTHER INTANGIBLE ASSETS

Intangible assets arising from an independent acquisition

Intangible assets acquired from third parties in a market transaction are measured at cost.

If their useful life is finite they are amortised depending upon it and, if they have an indefinite

useful life, they are tested for impairment at least on an annual basis.

5.2 PROPERTY, PLANT AND EQUIPMENT, AND INVESTMENT PROPERTY

Property, plant and equipment, and investment property are carried at cost less accumulated

depreciation and, if applicable, accumulated impairment losses.

Costs incurred after the purchase are recognised as an asset only when future economic profits

related to them are likely to revert to the Group and the cost of the element may be accurately

determined. Other repair and maintenance expenses are debited to the income statement

during the financial year when they are incurred.

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The elements of property, plant and equipment, and investment property are depreciated on a

straight-line basis on the cost of acquisition of the asset less its residual value and less the value

of land, based on the following periods of useful life of the different assets:

Group of elements Years Anual rate

Buildings and other structures 50–25 2%–4%

Transport elements 6.25 16%

Furniture 10 10%

Fittings 16.6–10 6%–10%

Data processing equipment 4 25%

The residual value and the useful life of the assets are reviewed and adjusted, if required, on the

balance sheet date of each financial year.

The elements of property, plant and equipment and investment property are written off when

they are sold or when they are no longer likely to produce future economic profits deriving from

their continued use. Gains or losses arising from the write-off are accounted for in the income

statement.

5.3 LEASES

Operational leasesLeases where the lessor retains a significant part of the risks and benefits inherent in the

ownership are classified as operational leases. Payments in the concept of operational leases

(net of any incentive received from the lessor) are debited to the consolidated statement account

on a straight-line basis during the period of the lease.

5.4 FINANCIAL INVESTMENTS

RecognitionFinancial assets traded on secondary securities markets are generally recognised on the

settlement date.

ClassificationFinancial investments are classified into the following portfolios:

PORTFOLIO HELD TO MATURITY

This category includes the securities with respect to which there is the intention and proven

financial capacity to hold them until their maturity.

PORTFOLIO AVAILABLE FOR SALE

This portfolio includes debt securities not falling under the “Portfolio held to maturity” or

“Trading portfolio” and the equity instruments of entities not being controlled, associated or

jointly held businesses and which have not been included in the “Trading portfolio”.

TRADING PORTFOLIO

This portfolio includes the financial assets that are originated or acquired with a view to their

short-term realisation, which form part of a financial instruments portfolio being jointly identified

and managed and which, according to recent experience, may give rise to short term gains.

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This portfolio also includes derivative instruments not earmarked for hedging purposes and hybrid

financial assets stated at fair value.

In the case of hybrid financial assets, which simultaneously include a main contract and a

financial derivative, both elements are segregated and dealt with independently to the effects of

their classification and valuation. Exceptionally, when the said segregation is not feasible, hybrid

financial assets are accounted for at fair value.

MeasurementOn their initial recognition in the balance sheet, all financial investments forming part of the

above mentioned portfolios are recognised at the fair value of the consideration delivered, plus,

in the case of financial investments not being classified in the “Trading Portfolio”, any dealing

costs being directly attributable to their purchase

After the initial recognition, financial investments are stated at fair value, without deducting any

dealing cost that might be incurred on their sale or any other type of disposal, with the following

exceptions:

a) Financial investments included in the “Portfolio Held to Maturity” not earmarked for

hedging purposes, which are measured at their amortised cost using the effective interest

rate method.

The effective interest rate is the restatement rate equalling exactly the initial value of a financial

instrument to all its estimated cash flows for all concepts throughout its residual life.

b) Financial assets that are equity instruments and whose fair value may not be accurately

estimated, as well as derivatives having the said instruments as underlying asset and that

are settled by delivery, which are measured at cost.

The fair value of financial investments is the price that would be paid for them in an organised

and transparent market (“trading price” or “market value”). When the said market value is not

available, or when the price is not sufficiently representative, the fair value is determined by

restating the future financial flows, including the redemption value, at rates equivalent to the

average of the last month in the market for fixed income securities issued by the Government

and standardised according to the issuer’s quality and the maturity period.

The fair value of the financial derivatives included in the “Trading portfolio” is taken to be their

daily price on the list or the present value of future cash flows if the former is not available.

The book value of financial investments is adjusted against the income statement when there is

objective evidence of an event having occurred that has a negative impact on its future cash flows

or in the recovery of the book value. The objective evidence of the impairment is determined on

an individual basis for significant debt instruments and collectively for the groups of instruments

not being individually significant.

The amount of impairment losses is equal to the difference between their book value and

the present value of their estimated future cash flows, but for listed instruments, where the

present value of cash flows is taken to be their market value, provided this is sufficiently reliable

and considering, in any case, the credit risk. The amount of estimated impairment losses is

recognised in the income statement, including, in addition, any reduction in the fair value of

investments previously recognised under “Valuation adjustment reserves”.

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5.5 IMPAIRMENT OF ASSETS

At the closing of each financial year, the Group assesses if there are signs that the asset

element may have suffered a loss in value. If there are such signs, the recoverable value of the

asset is estimated.

In the case of assets not being in operating conditions and of intangible assets with an indefinite

useful life, the estimation of the recoverable value is made irrespectively of the existence of

impairment signs.

If the book value exceeds the recoverable amount, a loss is recognised for the excess, reducing

the book value of the asset down to its recoverable amount.

When there is an increase in the recoverable value of an asset other than goodwill, the

previously recognised impairment loss is reversed, increasing the book value of the asset up to

its recoverable value. This increase never exceeds the book value net of amortisation that would

be accounted for had no impairment loss been recognised in previous years. The reversal is

recognised in the income statement, unless the asset has been already subject to revaluation

against “Valuation adjustment reserves”, in which case the reversal is treated as a revaluation

increase. After this reversal, the amortisation expense is adjusted in the following periods.

5.6 CREDITS AND RECEIVABLES

Valuation of these assets is generally made at the amortised cost, calculated in accordance with

the effective interest rate method and deducting, if applicable, provisions for losses due to any

perceived asset impairment.

When there is objective evidence that an impairment loss has been incurred, the relevant

provision has been established for the amount deemed not recoverable. The said amount is

equal to the difference between the book value of the asset and the present value of future cash

flows, discounted at the original effective interest rate of the financial asset. The amount of the

loss is recognised in the income statement of the year.

5.7 CASH AND BANKS

Cash and Banks consists of cash and cash equivalents.

Cash is formed by cash and sight deposits with banks.

Cash equivalents correspond to highly liquid short term investments that can be easily converted

into fixed amounts of cash and are subject to insignificant risks as to change in their value, and

have maturities below twenty four hours.

5.8 ACCRUAL ADJUSTMENTS

The heading “Accrual adjustments” of the assets side basically includes fees and other

acquisition expenses corresponding to accrued premiums subject to allocation to the period

between the balance sheet date and the expiry of the hedge of the contracts, with such expenses

being those actually borne in the period, with the limit established in the technical bases.

Similarly, the heading “Accrual adjustments” of the liabilities side includes the amounts of fees

and other acquisition expenses of ceded reinsurance that are to be allocated in subsequent

years pursuant to the coverage period of ceded policies.

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5.9 NON-CURRENT ASSETS HELD FOR SALE AND RELATED LIABILITIES

Assets held for sale, if applicable, are generally stated at the lower of their book value and their

fair value deducting sale costs, these understood as any marginal costs directly attributable to

the disposal, excluding financial costs, if applicable, and the income tax related expense.

Non-current assets classified as held for sale are not subject to amortisation.

Losses for impairment of their book value are recognised in the income statement. Similarly,

when a recovery in value takes place, this is recognised in the income statement up to an

amount equal to the impairment loss previously recognised.

5.10 REINSURANCE OPERATIONS

a) Premiums

ACCEPTED AND RETROCEDED REINSURANCE

Premiums corresponding to accepted reinsurance are accounted for on the basis of the

accounts received from ceding companies.

Retroceded reinsurance transactions are accounted for under the same criteria as accepted

reinsurance, and pursuant to the retrocession contracts entered into.

b) Technical provisions

ACCEPTED REINSURANCE

Provision for unearned premiums

Accepted reinsurance transactions are accounted for on the basis of the accounts received from

ceding companies. When, upon closing the accounts, the ceding company’s latest accounts are

not available, the balance of other received accounts is considered as provisions for unearned

premiums of non closed accounts, in order not to recognise results in the recording of such

accounts. Exceptionally, if these provisions of non closed accounts are negatively affected by the

recording of major claim payments, because of their being an actual loss not subject to being

offset by movements of non closed accounts, the provision is adjusted for the relevant amount.

When the latest account and report on outstanding claims are available, provisions of non

closed accounts are cancelled, allocating the corresponding provisions for unearned premiums

according to the information provided by the ceding company, and accruing them on a policy

by policy basis. Failing this, the amount recorded for unearned premiums is the amount of the

deposit of premiums withheld on this concept and, lastly, an overall method for the accrual of

premiums may be used.

Acquisition expenses, as notified by ceding companies, are accrued under the heading of

“Accrual adjustments” in the balance sheet assets, with these expenses corresponding to those

actually borne in the period. When ceding companies do not notify the amounts, acquisition

expenses are accrued on a risk by risk basis for facultative proportional reinsurance and overall

for the rest of the proportional business.

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Provision for risks in progress

This is calculated on an individual business line basis and supplements the provision for

unearned premiums for the amount not showing the measurement of risks and expenses to be

covered, corresponding to the coverage period not elapsed at the closing date.

Provision for outstanding claims

Provisions for claims are allocated for the amounts notified by the ceding company or, failing

this, for withheld deposits, and include complementary provisions for claims existing and not

reported, as well as for deviations in existing ones, in accordance with the company’s own

experience.

RETROCEDED REINSURANCE

Retroceded reinsurance transactions and their corresponding technical provisions are recorded

following the same criteria as for accepted reinsurance and according to the retrocession

agreements entered into.

c) Liabilities adequacy testA reasonability test is periodically run on technical provisions existing in the books in order

to determine their adequacy on the basis of the projections of all future cash flows of existing

contracts. Recorded provisions are adjusted against the results of the financial year if it becomes

evident that they are inadequate, as a consequence of the test.

d) ClaimsClaims corresponding to accepted reinsurance are accounted for on the basis of the accounts

received from ceding companies, and on the basis of information gathered according to the

company’s own experience.

Claims corresponding to retroceded reinsurance are accounted for according to the reinsurance

contracts entered into, and under the same criteria as those used for accepted reinsurance.

5.11 PROVISIONS FOR RISKS AND EXPENSES

Provisions are recognised when the present obligation exists as a result of a past event and a

reliable estimate of the amount of the obligation may be made.

When a provision is expected to be recovered, partly or fully, the reimbursement is recognised

as a separate asset.

5.12 DEBT

The measurement of the items included under the heading “Debt” is generally made at

amortised cost, using the effective interest rate method.

In the case of debt with maturity beyond one year, if the parties have not expressly agreed the

applicable interest rate, debts are discounted taking as implicit financial interest that in force in

the public debt market for securities with the same or similar term to the maturity of the debts,

without prejudice to taking into account the relevant risk premium.

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5.13 GENERAL CRITERION ON REVENUES AND EXPENSES

The general principle applicable to the recognition of revenues and expenses is the accrual

criterion, pursuant to which the allocation of revenues and expenses is made depending upon

the actual flow of goods and services represented by them, irrespectively of the date of the

monetary or financial flow deriving from them.

5.14 REMUNERATION TO STAFF

Remuneration to staff may be short term, post-employment and termination payments.

a) Short term remunerationThis is recorded according to services provided by employees, on an accrual basis.

b) Post-employment remunerationIt essentially consists of defined benefit plans and defined contribution plans.

DEFINED BENEFIT PLANS

These are post-employment benefit plans other than defined contribution plans

The liability recognised in the balance sheet in relation to defined benefit pension plans is equal

to the present value of the defined benefit obligation on the balance sheet date, deducting, if

applicable, the fair value of the assets earmarked to the plan.

The obligation on defined benefits is determined separately for each plan, using the actuarial

valuation method of projected credit unit.

Actuarial losses and gains arising are debited or credited to the income statement in the

financial year when they take place.

DEFINED CONTRIBUTION PLANS

These are post-employment benefit plans, in which the entity involved makes pre-determined

contributions to a separate entity (whether connected or alien to the Group) and has no legal

or implicit obligation of making additional contributions, should there be an insufficiency of

assets to honour the payment of benefits. Therefore, the obligation solely consists of making the

contribution that is agreed to a fund, and the amount of benefits to be received by employees is

determined by the contributions made plus the return obtained on the investments where the

fund is materialised.

c) Termination paymentsTermination payments are recognised as a liability and as an expense when there is a

demonstrable intention of termination of the labour relationship before the normal retirement

date as regards a given number of employees, or when there is an offer to encourage the

voluntary termination of labour contracts.

d) Other long term benefitsThe accounting record of other long term benefits other than those described in the preceding

paragraphs follows the above mentioned principles, except for the cost of past service, which is

recognised immediately.

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5.15 REVENUES AND EXPENSES FROM INVESTMENTS

Revenues and expenses from investments are classified between operations and equity

depending upon their origin, if they are earmarked to covering technical provisions or they

materialise shareholders’ equity, respectively.

Revenues and expenses from financial investments are accounted for depending upon the

portfolio in which they are classified, pursuant to the following criteria:

a) Trading portfolioChanges in fair value are directly accounted for in the income statement, differentiating the

portion attributable to yields, which is recorded as interest or, if applicable, as dividends, and

the portion that is recorded as realised and unrealised results.

b) Portfolio held to maturityChanges in fair value are recognised when the financial instrument is written off in the balance

sheet and in case of impairment.

c) Portfolio available for saleChanges in fair value are recognised directly in the company’s equity until the financial asset is

written off, at which time they are recorded in the income statement.

In all cases, interest from financial instruments is calculated by the effective interest rate method.

5.16 RECLASSIFICATION OF EXPENSES BY FINAL NATURE AND ALLOCATION TO ACTIVITY SEGMENTS

The criteria followed for the reclassification of expenses according to their final nature are

mainly based on the function fulfilled by each employee, with their direct and indirect cost being

distributed pursuant to the said function.

As regards expenses not directly or indirectly related to staff, individual studies are carried out,

and they are allocated according to the function fulfilled by the said expenses.

The established destinations are as follows:

° Expenses to be allocated to benefits.

° Expenses to be allocated to investments.

° Other technical expenses.

° Other non technical expenses.

° Acquisition expenses.

° Administration expenses.

Expenses have been allocated to the following segments, depending upon the business line having

originated them:

° Accepted reinsurance Life.

° Accepted reinsurance Non Life.

5.17 TRANSACTIONS AND BALANCES IN FOREIGN CURRENCIES

Except for reinsurance transactions, transactions in foreign currencies are translated into

Euros at the exchange rate prevailing on the transaction date.

Reinsurance transactions in foreign currencies are recorded at the exchange rate established

at the beginning of each quarter in the year. Later on, upon the closing of each quarter, they are

all dealt with as a single transaction, translating the amount at the exchange rate prevailing on

that date and recording the corresponding difference in the income statement.

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At year end, existing balances denominated in foreign currencies are translated at the exchange

rate of the Euro prevailing on that date, with all exchange differences being taken to the income

statement, except those directly allocated to “Forex translation differences”, which are those

arising from the monetary items that form part of the net investment in a foreign operation

and from the non monetary ones stated at fair value, where changes in valuation are directly

recognised in equity.

5.18 INCOME TAX

Income tax that is considered as an expense in the year is recorded as such in the income

statement, and includes both the tax charge for the current tax and the effect corresponding to

the movement of deferred tax.

For its determination, the liability method based on the balance sheet is used, according to

which the relevant deferred tax assets and liabilities are recorded as may be necessary to

correct the effect of temporary differences, which are the differences existing between the book

value of an asset or a liability and that representing its tax valuation.

Likewise, long term deferred assets and liabilities have been measured according to the rates

that will be applicable in the financial years when the assets are expected to be realised or the

liabilities expected to be paid.

Temporary differences may be “Taxable temporary differences”, which give rise to a higher

amount of taxes payable in the future and which generally entail the recognition of a deferred tax

liability, or “Deductible temporary differences”, which give rise to a lower amount of taxes payable

in the future and to the extent they may be recoverable when recording a deferred tax asset.

On the other hand, income tax related to items where modifications in valuation are directly

recognised in equity are not allocated to the income statement, but to equity, with the valuation

changes being recorded in the said assets, net of the tax effect.

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6. Breakdown of the consolidated report

6.1 INTANGIBLE ASSETS

The following tables detail the movement of this heading in the last two financial years:

FINANCIAL YEAR 2006

Items Opening balance 2006

Adjustments to Opening

balancel

Changes in perimeter

Aditions or appropriations

Disposals, cancellations or reductions

Closing balance

2006

GOODWILL 1,646 (1,646)


Computer applications 1,820 (37) 1,227 (2) 3,008

Others

COST 3,466 (37) 1,227 (2) 3,008

ACCUMULATED AMORTISATION


Computer applications (965) 13 (228) 2 (1,178)

Others

ACCUMULATED AMORTISATION (965) 13 (228) 2 (1,178)

IMPAIRMENT

GOODWILL


Computer applications

Others

IMPAIRMENT

SUB-TOTAL OTHER INTANGIBLE ASSETS

855 (24) 999 1,830

TOTAL INTANGIBLE ASSETS, NET 2,501 (24) 999 (1,646) 1,830

(Amounts in EUR thousands)

FINANCIAL YEAR 2005

Items Opening balance 2005


balance

Changes in perimeter

Aditions or appropriations


Closing balance

2005

GOODWILL 1,646 1,646


Computer applications 1,294 31 531 (36) 1,820

Others

COST 2,940 31 531 (36) 3,466

ACCUMULATED AMORTISATION


Computer applications (704) (12) (249) (965)

Others

ACCUMULATED AMORTISATION (704) (12) (249) (965)

IMPAIRMENT

GOODWILL


Computer applications

Others

IMPAIRMENT

SUB-TOTAL OTHER INTANGIBLE ASSETS

590 19 282 (36) 855

TOTAL INTANGIBLE ASSETS, NET 2,236 19 282 (36) 2,501


A breakdown is given below of the useful life and amortisation rates used for the following intan-

gible assets, having adopted in all cases the straight-line method of amortisation.

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Group of elements Useful life (years) Amortisation rate (annual)

Computer applications 4 25%

The amortisation of intangible assets with finite useful life has been recorded in the expenses

account “Amortisation allowances”.

The useful life of the following intangible assets is considered indefinite, since the said assets

are expected to contribute to obtaining future revenues for the Group, indefinitely:

ElementsBook value

31/12/2005 31/12/2004

Computer applications 1,646 1,646


Cash generating units The following table provides detailed information on the cash generating units to which the

different goodwill items are allocated, as well as their book value and, if applicable, the

impairment amount over the last two years.

FINANCIAL YEAR 2006

Impairment in year 2006

Concept Cash generating unit

Balance 31/12/05

Adjustments to Opening balance

Impairment in the year

Balance 31/12/06

a) Goodwill on consolidation I.G.

MAPFRE HOLDINGS INC.. MAPFRE REINSURANCE CO.

1,646 – (1,646) –


FINANCIAL YEAR 2005

Deterioro año 2005

Concept Cash generating unit

Balance 31/12/04

Adjustments to Opening balance

Impairment in the year

Balance 31/12/05

a) Goodwill on consolidation I.G.

MAPFRE RE HOLDINGS INC. MAPFRE REINSURANCE CO.

1,646 – – 1,646


The book value, net of any impairment, of each of the above described goodwill items is, in all

cases, equal to or lower than the amount recoverable from the cash generating unit to which

they are allocated, which has been determined according to its use value, calculated on the

basis of cash flow projections.

The discount rate applied to the said projections is based on the interest rates of the geographical

market where each cash generating unit operates, to which a risk premium has been added

depending upon the unit’s type of activity. The risk free interest rate used in the projections is

5.18% in 2006 and 4.57% in 2005.

Projections corresponding to the first three years take into account growth rates of the flows

based on historical experience, while for the following years constant flows are considered.

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The impairment loss of 1.65 million Euros represents the recognition of the difference between

the carrying amount and the recoverable amount of the cash generating unit Mapfre Holdings

Inc., as estimated in the assessment of the recoverable amount made on the basis of fair value.

The loss was mainly due to the discontinuation of activity by MAPFRE RE HOLDINGS.

6.2 PROPERTY, PLANT AND EQUIPMENT, AND INVESTMENT PROPERTY

Property, plant and equipmentThe following tables detail the movement of this heading in the 2006 and 2005 financial years.

FINANCIAL YEAR 2006

ItemsOpening balance

2006


balance

Changes in

PerimeterAdditions or

appropriations


Closing balance

2006Market

value

COST

PROPERTY FOR OWN USE 36,954 (161) 36,793 42,107

Land and natural resources 18,554 (16) 18,538 18,538

Buildings and other structures 18,400 (145) 18,255 23,569

OTHER TANGIBLE ASSETS 5,963 (259) 714 (171) 6,247 1,854

Transport elements 726 (33) 184 (169) 708 311

Furniture and fittings 3,319 (171) 196 (1) 3,343 934

Other tangible fixed assets 1,902 (55) 313 (1) 2,159 572

Advances and fixed assets in progress 16 21 37 37

TOTAL COST 42,917 (420) 714 (171) 43,040 43,961

ACCUMULATED DEPRECIATION

PROPERTY FOR OWN USE (1,770) (350) (2,120)

OTHER TANGIBLE FIXED ASSETS (4,162) 190 (463) 95 (4,340)

TOTAL ACCUMULATED DEPRECIATION (5,932) 190 (813) 95 (6,460)

IMPAIRMENT

PROPERTY FOR OWN USE

Land and natural resources

Buildings and other structures

OTHER TANGIBLE ASSETS

Transport elements

Furniture and fittings

Other tangible fixed assets

Advances and fixed assets in progress

TOTAL IMPAIRMENT

TOTAL PROPERTY FOR OWN USE 35,184 (161) (350) 34,673 42,107

TOTAL OTHER TANGIBLE FIXED ASSETS 1,801 (69) 251 (76) 1,907 1,854

Amounts in EUR thousands

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FINANCIAL YEAR 2005

ItemsOpening balance

2006


balance

Changes in

PerimeterAdditions or

appropriations


Closing balance

2006Market

value

COST

PROPERTY FOR OWN USE 36,536 418 36,954 38,243

Land and natural resources 18,523 31 18,554 18,554

Buildings and other structures 18,013 387 18,400 19,689

OTHER TANGIBLE ASSETS 5,473 504 663 (677) 5,963 1,992

Transport elements 636 59 150 (119) 726 396

Furniture and fittings 3,243 367 244 (535) 3,319 896

Other tangible fixed assets 1,594 78 253 (23) 1,902 684

Advances and fixed assets in progress 16 16 16

TOTAL COST 42,009 922 663 (677) 42,917 40,235


PROPERTY FOR OWN USE (1,263) (142) (365) (1,770)

OTHER TANGIBLE FIXED ASSETS (3,731) (492) (474) 535 (4,162)

TOTAL ACCUMULATED DEPRECIATION (4,994) (634) (839) 535 (5,932)

IMPAIRMENT

PROPERTY FOR OWN USE – – – – – –

Land and natural resources – – – – – –

Buildings and other structures – – – – – –

OTHER TANGIBLE ASSETS – – – – – –

Transport elements – – – – – –

Furniture and fittings – – – – – –

Other tangible fixed assets – – – – – –

Advances and fixed assets in progress – – – – – –

TOTAL IMPAIRMENT – – – – –

TOTAL PROPERTY FOR OWN USE 32,573 276 (365) 35,184 38,243

TOTAL OTHER TANGIBLE FIXED ASSETS 1,742 12 189 (142) 1,801 1,992


Additional informationThe fully depreciated cost of property, plant and equipment as at 31 December 2006 and 31

December 2005 amounts to EUR 1.02 million and EUR 1.56 million, respectively.

Investment propertyThe following tables detail the movement of this heading in financial years 2006 and 2005:

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FINANCIAL YEAR 2006

Items Opening balance

2006

Adjustments to opening

balance

Changes in

perimeter

Additions or

appropriations

Disposals cancellations

or reductions Transfer

Closing balance

2006Market

value

COST

INVESTMENT PROPERTY 46,290 (4,470) (159) 41,661 36,814

Land and natural resources 11,234 (1,298) 9,936 9,985

Buildings and other structures 35,056 (3,172) (159) 31,725 26,829

OTHER INVESTMENT PROPERTY

ADVANCES AND TANGIBLE INVESTMENTS IN PROGRESS

TOTAL COST 46,290 (4,470) (159) 41,661 36,814


INVESTMENT PROPERTY (6,489) 130 (209) 159 (6,409)

OTHER PROPERTY INVESTMENTS

TOTAL ACCUMULATED DEPRECIATION

(6,489) 130 (209) 159 (6,409)

IMPAIRMENT

INVESTMENT PROPERTY (76) 7 (69)

Land and natural resources (42) 4 (38)

Buildings and other structures (34) 3 (31)


TOTAL IMPAIRMENT (76) 7 (69)

TOTAL INVESTMENT PROPERTY

39,725 (4,333) (209) 35,183 36,814


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FINANCIAL YEAR 2005

Items Opening balance

2006

Adjustments to opening

balance

Changes in

perimeter

Additions or

appropriations

Disposals cancellations

or reductions Transfer

Closing balance

2006Market

value

COST

INVESTMENT PROPERTY 44,859 10,524 (9,155) 46,290 40,670

Land and natural resources 12,142 3,402 (4,310) 11,234 11,190

Buildings and other structures 32,717 7,122 62 (4,845) 35,056 29,480

OTHER INVESTMENT PROPERTY 1,086 (1,086)

ADVANCES AND TANGIBLE INVESTMENTS IN PROGRESS

TOTAL COST 45,945 10,524 62 (10,241) 46,290 40,670


INVESTMENT PROPERTY (5,389) (1,222) (232) (354) (6,489)

OTHER PROPERTY INVESTMENTS

TOTAL ACCUMULATED DEPRECIATION (5,389) (1,222) (232) (354) (6,489)

IMPAIRMENT

INVESTMENT PROPERTY (35) (10) (33) 2 (76)

Land and natural resources (21) (6) (42)

Buildings and other structures (14) (4) 2 (34)


TOTAL IMPAIRMENT (35) (10) (33) 2 (76)

TOTAL INVESTMENT PROPERTY 40,521 9,292 (203) (9,885) 39,725 40,670


The amounts shown under “Disposals” basically relate to realisations made by INVERSIONES

IBERICAS, a subsidiary of MAPFRE RE, during 2005.

The market value of investment property is in line with the appraisal value determined by the

Directorate General of Insurance and Pension Funds or an authorised independent appraiser.

Revenues and expenses from leases arising from investment property in financial years 2005

and 2004 are detailed in the following table.

Concept

Investments from

Operations Equity Total

2006 2005 2006 2005 2006 2005

Revenues from investment property

From leases 2.383 2.522 149 154 2.532 2.676

Gains on disposals – – – – – –

TOTAL REVENUES FROM INVESTMENT PROPERTY 2.383 2.522 149 154 2.532 2.676

Expenses from investment property

Direct operating expenses (660) (1.141) (66) (259) (726) (1.400)

Losses on disposals (317) – – (317)

TOTAL EXPENSES FROM INVESTMENT PROPERTY (977) (1.141) (66) (259) (1.043) (1.400)


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6.3 LEASES

The Group has leased the following elements by means of operational lease contracts:

FINANCIAL YEAR 2006

Asset type Net book value Duration of contract Years elapsed

Property Belgium 5,017 9 4

Property Chile 29,228 1 Annual rollover

Properties Colombia 938 13 Annual rollover

TOTAL 35,183


FINANCIAL YEAR 2005

Asset type Net book value Duration of contract Years elapsed

Property Belgium 5,165 7 5

Property Chile 33,492 1 Annual rollover

Properties Colombia 1,068 1 Annual rollover

TOTAL 39,725


As at 31 December of the last two years, minimum future collections to be received in the con-

cept of operational lease agreements not liable of cancellation are as follows:

Minimum collections 2006 Minimum collections 2005

Below one year 3,234 3,431

Over one year but below five years 14,678 16,694

More than five years 101 422

Total 18,013 20,547


6.4 FINANCIAL INVESTMENTS

As at 31 December 2006 and 2005, the breakdown of financial investments is as follows:

Concept Book value

Year 2006 Year 2005


Fixed income

Other investments 121,682 181,809

TOTAL PORTFOLIO HELD TO MATURITY 121,682 181,809


Equities 123,942 51,831

Fixed income 1,101,187 1,013,442

Investment funds 30,326 16,512

Others 52 –

TOTAL PORTFOLIO AVAILABLE FOR SALE 1,255,507 1,081,785

TRADING PORTFOLIO

Other investments

Equities 93

Fixed income

Investment funds 48,909 35,193

Others 15,356 16,350

TOTAL TRADING PORTFOLIO 64,358 51,543


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a) Portfolio held to maturityA breakdown is given below of investments earmarked to the portfolio held to maturity, as at 31

December 2006 and 2005:

31/12/2006

ConceptBook value(amortised

cost) Fair valueRevenues from

interest

Impairment

Recorded loss Gains on

Fixed income

Other investmentsy 121,682 121,682 6,768 – –

TOTAL PORTFOLIO HELD TO MATURITY 121,682 121,682 6,768 – –


31/12/2005

ConceptBook value(amortised

cost) Fair valueRevenues from

interest

Impairment

Recorded loss Gains on

Fixed income – – – – –

Other investmentsy 181,809 181,809 3,974 – –

TOTAL PORTFOLIO HELD TO MATURITY 181,809 181,809 3,974 – –


b) Portfolio available for saleA breakdown is given below of investments earmarked to the portfolio available for sale, as at

31 December 2006 and 2005:

31/12/2006

Concept Book value(Fair value)

Impairment

Recorded loss Gains on reversal

Equities 123,942 – –

Fixed income 1,101,187 – –

Investment funds 30,326 – –

Others 52 – –

TOTAL PORTFOLIO AVAILABLE FOR SALE 1,255,507 – –


31/12/2005

Concept Book value(Fair value)

Impairment

Recorded loss Gains on reversal

Equities 51,831 – –

Fixed income 1,013,442 – –

Investment funds 16,512 – –

Others – – –

TOTAL PORTFOLIO AVAILABLE FOR SALE 1,081,785 – –


Valuation adjustments in the portfolio investments amount to EUR 32.84 million and EUR 27.46

million as at 31 December 2006 and 2005, respectively, which have been recorded in equity net

of the tax effect.

Transfers to the income statement of valuation adjustments of portfolio investments in previous

financial years, carried out during financial years 2006 and 2005, amount to EUR 0.83 million and

EUR 14.69 million, both net, respectively.

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c) Trading portfolio Capital gains and losses of the trading portfolio are recorded in the income statement. The rele-

vant information is included in Note 6.14 “Revenues and expenses from investments”.

d) Other investmentsThe breakdown of “Other investments” for years 2006 and 2005 is shown in the following tables:

FINANCIAL YEAR 2006

Book value Provision Net balance Market value

Group companies 86 86 86

Other investments 388 388 388

TOTAL 474 474 474


FINANCIAL YEAR 2005

Book value Provision Net balance Market value

Group companies 177 177 164

Other investments 350 350 350

TOTAL 527 527 514


6.5 CREDITS AND RECEIVABLES

The following tables show the composition of credits and receivables as at 31 December 2006

and 2005; they also show the impairment losses and gains on reversal of impairment recorded

in the last two financial years:

Concept

Balance as at 1/12/2006

Guarantees received

Gross import

Provision for impairment

(-)

Net balance in balance

sheet

Recorded losses

Gains on reversal

Receivables on reinsurance transactions 148,501 (1,248) 147,253 (6) 9 –

Tax credits 3,517 3,517

Corporate and other credits 15,370 15,370

TOTAL CREDITS 167,388 (1,248) 166,140 (6) 9


Concept

Balance as at 1/12/2005

Guarantees received

Gross import

Provision for impairment

(-)

Net balance in balance

sheet

Recorded losses

Gains on reversal

Receivables on reinsurance transactions 147,665 (1,252) 146,413 (151) –

Tax credits 9,303 9,303

Corporate and other credits 11,227 11,227

TOTAL CREDITS 168,195 (1,252) 166,943 (151)


The balances included under credits and receivables do not accrue interest and, generally, sett-

lement is made in the following year.

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6.6 IMPAIRMENT OF ASSETS

The following tables detail the asset impairment over the last two years.

FINANCIAL YEAR 2006

Impairment in: Opening balance

Adjustmentns to opening

balance

Changes in

perimeter

Recording in results

Direct recording in equity Closing

balanceAllowance Reducción Allowance Reduction

INTANGIBLE ASSETS

I Goodwill

II Other intangible assets

PROPERTY, PLANT AND EQUIPMENT

I Property for own use

II Other property elements

INVESTMENTS

I Investment property (76) 7 (69)

II Financial investments

– Portfolio held to maturity

– Portfolio available for sale

– Trading portfolio

III. Investments recorded by the equity method

IV Deposits established for accepted reinsurance

V Other investments

CREDITS & RECEIVABLES

I. Credits from direct insurance and coinsurance transactions

II. Credits from reinsurance transactions

(1,252) 1 (6) 9 (1,248)

III. Tax credits

IV. Corporate and other credits

V. Shareholders, called capital

OTHER ASSETS

TOTAL IMPAIRMENT (1,328) 8 (6) 9 (1,317)


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FINANCIAL YEAR 2005

Impairment in: Opening balance

Adjustmentns to opening

balance

Changes in

perimeter

Recording in results

Direct recording in equity Closing

balanceAllowance Reducción Allowance Reduction

INTANGIBLE ASSETS

I Goodwill

II Other intangible assets

PROPERTY, PLANT AND EQUIPMENT

I Property for own use

II Other property elements

INVESTMENTS

I Investment property (35) (10) (33) (2) (69)

II Financial investments

– Portfolio held to maturity

– Portfolio available for sale

– Trading portfolio

III. Investments recorded by the equity method

IV Deposits established for accepted reinsurance

V Other investments

CREDITS & RECEIVABLES

I. Credits from direct insurance and coinsurance transactions

II. Credits from reinsurance transactions

(1,101) (151) (1,252)

III. Tax credits

IV. Corporate and other credits

V. Shareholders, called capital

OTHER ASSETS

TOTAL IMPAIRMENT (1,136) (10) (184) 2 (1,328)


6.7 CASH AND BANKS

During 2005, disposals were made of investments in Group companies, amounting to EUR 2.97

million, arising from the sale of MAPLUX REINSURANCE COMPANY.

The fair values of the identifiable assets and liabilities of MAPLUX REINSURANCE COMPANY on

the date of sale were as follows:

Concept 100%

ASSETS

Investments 14,441

Credits and receivables 6

Cash and banks 1,201

Accrual adjustments 201

TOTAL ASSETS 15,849

LIABILITIES

Debts 3,947

TOTAL LIABILITIES

Fair value of net assets 11,902

Total realisation 2,971


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There are no significant monetary transactions, related to investment and funding activities,

having been excluded from the cash flow statements.

6.8 NON CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

The main types of non-current assets held for sale as at 31 December 2006 and 31 December

2005 are shown in the following table:

31/12/2006 31/12/2005

ASSETS

Property, plant and equipment 148 672

TOTAL FIXED ASSETS HELD FOR SALE 148 672


The assets included in the preceding table corresponding to financial years 2006 and 2005 are

presented under the activity segments of Reinsurance Life for the last two years.

The reason for these assets being classified as non-current assets held for sale as at 31

December 2006 and 31 December 2005 is that the expected returns have not been obtained.

The sale of the non-current assets held for sale corresponding to 2006 is expected to take place

within 12 months, with no losses expected to be incurred in the said disposal.

Discontinued operationsDuring April 2005, the sale of MAPLUX REINSURANCE COMPANY to MAPFRE SEGUROS

GENERALES took place. MAPLUX REINSURANCE COMPANY formed part of the non life

reinsurance segment, and of the European geographical segment. The sale price amounted to

EUR 2.97 million and was received fully in cash. The result of this transaction amounted to a

loss of EUR 8.9 million.

6.9 EQUITY

Share capitalShare capital is recorded for the nominal value of shares being fully paid-up or the payment of

which has been called.

The controlling Company’s share capital as at 31 December 2006 is represented by 72,231,068

registered shares of a single class, with a nominal value of EUR 3.10 each, fully subscribed and

paid-up. All the shares confer the same political and economic rights.

On 1 December 2004, the Board of Directors approved a capital increase by the issuance of

6,821,283 new ordinary, registered shares with a nominal value of EUR 3.10 each. These shares

were issued at 236.45%, namely, at EUR 7.33 per share, of which EUR 3.10 represent the

nominal value and EUR 4.23 the share premium. The capital increase was fully subscribed and

paid-up during the 2005 financial year.

The said capital increase gave rise to expenses amounting to EUR 0.5 million, which were

deducted from equity, net of the tax effect, for an amount of EUR 0.33 million in the account

“Valuation adjustment reserves”.

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Restrictions on the availability of reserves

The “Reserves” item includes the legal reserve, amounting to EUR 23.89 million in 2006 and EUR

16.13 million in 2005. This reserve may not be distributed among shareholders, except in the

event of winding-up of the controlling Company, and may be used only to offset eventual losses.

The same restriction applies to the legal reserves established by subsidiaries in their balance

sheets.

Valuation adjustment reservesThe “Valuation adjustment reserve” includes the equity reserves arising from fair value

adjustments of the different assets and liabilities that, pursuant to IFRS, must be directly

recorded in the equity accounts.

There are no other restrictions on the availability of reserves for significant amounts.

From the amount of the “Valuation adjustment reserve” as at the balance sheet date, capital

increase expenses have been deducted amounting to EUR 1.21 million in financial year 2005.

Management of capitalMAPFRE has in place an internal capitalisation and dividend policy aimed at providing its Units,

reasonably and objectively, with the required capitals to cover the assumed risks. Both the

estimation of risks and the allocation of capital to each one of the units are detailed in note 7 of

the “RISK MANAGEMENT” report.

On the other hand, the items forming part of the Group’s uncommitted equity are in line with the

requirements presently in force.

The amount of the Group’s solvency margin in financial years 2006 and 2005 is EUR 605.92

million and EUR 608.72 million, respectively. Both figures exceed the required minimum (i.e.

EUR 201.25 million and EUR 198.11 million respectively) by three times in financial year 2006

and by 3.07 times in 2005.

6.10 TECHNICAL PROVISIONS

The following tables show the composition of the balance of each one of the technical provisions

recorded in the balance sheet in the last two financial years.

FINANCIAL YEAR 2006

Concepts Accepted reinsurance Retroceded reinsurance

1. Provisions for unearned premiums and for risks in progress

1.1. Provision for unearned premiums 807,143 283,289

1.2. Provision for risks in progress 126

2. Provisions for life insurance

2.1. Provisions for unearned premiums and risks in progress

2.1.1. Provision for unearned premiums 69,711 7,793

2.1.2. Provision for risks in progress

2.2. Mathematical reserves 55,494

3. Provisions for claims

3.1. Pending settlement or payment 723,767 234,155

TOTAL 1,656,241 525,237


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FINANCIAL YEAR 2005

CONCEPTOS Accepted reinsurance Retroceded reinsurance

1. Provisions for unearned premiums and for risks in progress

1.1. Provision for unearned premiums 649,302 226,944

1.2. Provision for risks in progress 3,925

2. Provisions for life insurance

2.1. Provisions for unearned premiums and risks in progress

2.1.1. Provision for unearned premiums 59,847 6,191

2.1.2. Provision for risks in progress

2.2. Mathematical reserves 61,140

3. Provisions for claims

3.1. Pending settlement or payment 807,755 309,690

TOTAL 1,581,969 542,825


The following tables show the movements of each one of the technical provisions recorded in

the balance sheet in the last two financial years.

Accepted reinsurance

FINANCIAL YEAR 2006

Concept Opening balance

Ajustments to opening

balanceChanges in perimeter Allocations Aplications Variation

Closing balances

I. Provision for unearned premiums/risks in progress 653,227 3,201 807,269 (656,428) 150,841 807,269

1. Provision for unearned premiums 649,302 3,201 807,143 (652,503) 154,640 807,143

2. Provision for risks in progress 3,925 – 126 (3,925) (3,799) 126

II. Provisions for life insurance 120,987 (6,887) 125,205 (114,100) (11,105) 125,205

1. Provision for unearned premiums 59,847 (45) 69,711 (59,802) 9,909 69,711

2. Provision for risks in progress –

3. Mathematical reserve 61,140 (6,842) 55,494 (54,298) 1,196 55,494

II. Provisions for profit sharing

III. Provision for claims 807,755 (14,454) 723,767 (793,301) 69,534 723,767

IV. Other technical provisions

TOTAL 1,581,969 (18,140) 1,656,241 (1,563,829) 92,412 1,656,241


FINANCIAL YEAR 2005




Closing balances

I. Provision for unearned premiums/risks in progress 524,556 2,167 – 653,227 (526,723) 126,504 653,227

1. Provision for unearned premiums 524,173 2,167 – 649,302 (526,340) 122,962 649,302

2. Provision for risks in progress 383 – – 3,925 (383) 3,542 3,925

II. Provisions for life insurance 92,584 9,162 – 120,987 (102,376) 18,611 120,987

1. Provision for unearned premiums 46,397 (21) – 59,847 (46,376) 13,471 59,847

2. Provision for risks in progress – – – – – – –

3. Mathematical reserve 46,187 9,183 – 61,140 (56,000) 5,140 61,140

II. Provisions for profit sharing – – – – – – –

III. Provision for claims 475,663 5,939 6,000 1,005,920 (673,767) 332,153 807,755

IV. Other technical provisions – – – – – –

TOTAL 1,092,803 17,268 (6,000) 1,780,134 (1,302,866) 477,268 1,581,969


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FINANCIAL YEAR 2006




Closing balances

Provision for unearned premiums 226,944 283,289 (226,944) 52,404 283,289

Provisions for Life Insurance 6,191 (20) 7,813 (6,191) 1,622 7,793

Provision for claims 309,690 234,155 (309,690) (75,535) 234,155

Other technical provisions

TOTAL 542,825 (20) 525,257 (542,825) (21,509) 525,237


FINANCIAL YEAR 2005




Closing balances

Provision for unearned premiums 164,531 373 – 226,944 (164,904) 62,040 226,944

Provisions for Life Insurance 6,331 5 – 6,162 (6,307) (145) 6,191

Provision for claims 125,466 1,756 – 309,690 (127,222) 182,468 309,690

Other technical provisions – – – – – – –

TOTAL 296,328 2,134 – 542,796 (298,433) 244,363 542,825


Mathematical reserves

FINANCIAL YEAR 2006

Concepts Accepted reinsurance

Mathematical reserve at beginning of year 61,140

Adjustments to opening balance (6,842)

Incorporation to perimeter (balance of reserve on incorporation date)

Premiums

Technical interest

Attribution of profit sharing

Payments/collections of claims

Losses recognised on provision adequacy test

Tacit accounting adjustments

Others 1,196

Exit from perimeter (balance of reserve on exit date)

Mathematical reserve at year end 55,494


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FINANCIAL YEAR 2005

Concepts Accepted reinsurance

Mathematical reserve at beginning of year 46,187

Adjustments to opening balance 9,183

Incorporation to perimeter (balance of reserve on incorporation date)

Premiums

Technical interest

Attribution of profit sharing (1,128)

Payments/collections of claims 6,268

Losses recognised on provision adequacy test

Tacit accounting adjustments

Others

Exit from perimeter (balance of reserve on exit date)

Mathematical reserve at year end 61,140


Evolution of claims per year of occurrenceDetails on the evolution of claims per year of occurrence in accepted reinsurance are not

provided because, generally, ceding companies follow accounting methods different from the

year of occurrence.

Pursuant to the studies carried out for accepted reinsurance, the degree of sufficiency of such

provisions is adequate

6.11 PROVISIONS FOR RISKS AND EXPENSES

Provisions The following tables detail the movements in the provisions for risks and expenses during the

last two financial years.

FINANCIAL YEAR 2006

ItemOpening balance

Adjusts to opening balance

Appropriations Cancellations

Closing balance

Amount of recognised

reimbursements

Maximun reversal

period

Allocated provisions

Increased valu on

discount

Applied provisions

Reversed provisions

Provision for taxes 323 (33) 17 307

Provisions for staff incentives

458 516 (458) 516

Other provisions 6,014 1,142 (9) 7,147 6,481

Total book value 6,795 (33) 1,675 (467) 7,970


FINANCIAL YEAR 2005

ItemOpening balance

Adjusts to

opening balance

Appropriations Cancellations

Closing balance

Amount of recognised

reimbursements

Maximun reversal

period

Allocated provisions

Increased valu on

discount

Applied provisions

Reversed provisions

Provision for taxes 221 37 129 (64) 323 – –

Provisions for staff incentives

492 – 458 (492) 458 – –

Other provisions 5,560 (633) 1,098 (11) 6,014 5,689 –

Total book value 6,273 (596) 1,685 (567) 6,795


The heading “Other provisions” includes the pension related commitments of the Lisbon office,

as well as obligations externalised with related parties, as detailed in note 6.18.

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6.12 DEPOSITS RECEIVED ON CEDED AND RETROCEDED REINSURANCE

Deposits on ceded and retroceded reinsurance represent guarantees given to reinsurers

depending upon the reinsurance coverage contracts entered into according to usual business

practices. The said deposits accrue interest to be paid ranging between 2% and 2.5% and the

average rollover period is generally annual. Liquidation of the said interest is made quarterly.

6.13 DEBTS

The balances included in the heading of debt do not accrue any interest to be paid and, generally,

their liquidation is carried out in the following financial year.

6.14 GUARANTEES UNDERTAKEN TO THIRD PARTIES

The controlling Company has delivered letters of credit, as a guarantee of premium and

outstanding claim reserves to official bodies, amounting to EUR 12.59 million in 2006 and EUR

121.32 million in 2006 and 2005, respectively. Fixed income securities of the portfolio available

for sale, amounting to EUR 207.94 million in 2006 and EUR 144.4 million in 2005, have been

pledged in favour of ceding companies as guarantee for the above mentioned letters of credit.

6.15 REVENUES AND EXPENSES FROM INVESTMENTS

The detail of revenues and expenses from investments for financial years 2006 and 2005 is

shown below:

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Concept

Revenues from investments of

TotalOperations Equity

2006 2005 2006 2005 2006 2005

REVENUES FROM INTEREST, DIVIDENDS AND SIMILAR

Investment property 2,383 2,522 149 154 2,532 2,676

– Rentals 2,383 2,522 149 154 2,532 2,676

– Others – – –

Revenues from the portfolio held to maturity 6,227 3,581 541 393 6,768 3,974

– Fixed income – – –

– Other investments 6,227 3,581 541 393 6,768 3,974

Revenues from the portfolio available for sale 42,418 39,451 5,706 6,306 48,124 45,757

Revenues from the trading portfolio 2,357 1,570 202 177 2,559 1,747

Dividends from Group companies – – –

Other financial returns 8,201 6,036 3,263 2,570 11,464 8,606

TOTAL REVENUESS 61,586 53,160 9,861 9,600 71,447 62,760

REALISED AND UNREALISED GAINS

Realised gains:: 4,723 13,084 819 2,036 5,542 15,120

Investment property – – –

Financial investments portfolio held to maturity – – –

Financial investments portfolio available for sale 4,702 13,070 815 2,022 5,517 15,092

Financial investments trading portfolio 21 14 4 14 25 28

Others – – –

Unrealised gains: 661 – 661

Increase of fair value in the trading portfolio 420 – 420

Others 241 – 241

TOTAL GAINS 4,723 13,745 819 2,036 5,542 15,781

TOTAL REVENUES FROM INVESTMENTS 66,309 66,905 10,680 11,636 76,989 78,541


Concept

Revenues from investments of

TotalOperations Equity

2006 2005 2006 2005 2006 2005

EXPENSES FROM INTEREST, DIVIDENDS AND SIMILAR

Investment property 977 1,141 66 259 1,043 1,400

– Rentals 660 – 66 – 726 –

– Others 317 1,141 259 317 1,400

Expenses from the portfolio held to maturity – – –

– Fixed income

– Other investments

Expenses from the portfolio available for sale 4,867 4,786 544 584 5,411 5,370

Expenses from the trading portfolio – – –

Other financial expenses 3,825 3,614 6,201 2,959 10,026 6,573

TOTAL EXPENSES 9,669 9,541 6,811 3,802 16,480 13,343

REALISED AND UNREALISED LOSSES

Realised losses: 4,296 508 772 196 5,068 704

Investment property – – –

Financial investments portfolio held to maturity 217 35 252

Financial investments portfolio available for sale 4,219 251 465 153 4,684 404

Financial investments trading portfolio 43 40 1 8 44 48

Others 34 – 306 – 340 –

Unrealised losses: (25) (25)

Decrease of fair value in the trading portfolio – – –

Others – (25) (25)

TOTAL LOSSES 4,296 508 772 171 5,068 679

TOTAL EXPENSES FROM INVESTMENTS 13,965 10,049 7,583 3,973 21,548 14,022


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6.16 OPERATING EXPENSES

A breakdown of net operating expenses for the last two financial years is shown below:

ConceptReinsurance

2006 2005

I. Acquisition expenses 384,445 341,645

II. Administration expenses 9,054 9,268

III. Fees and participation retroceded reinsurance (95,413) (89,281)

IV. Operating expenses from other activities – –

TOTAL NET OPERATING EXPENSES 298,086 261,632


A detail of staff expenses and amortisation allowance expenses for the last two financial years

is shown below.

ConceptReinsurance

2006 2005

Staff expenses 20,227 18,186

Allocations to amortisation 1,174 1,241

TOTAL 21,401 19,427


6.17 RESULTS FROM RETROCEDED REINSURANCE

The result from retroceded reinsurance transactions in financial years 2006 and 2005 is shown

below.

ConceptNon life Life Total

2006 2005 2006 2005 2006 2005

Premiums (-) (441,863) (410,851) (11,485) (13,055) (453,348) (423,906)

Variation in the provision for unearned premiumsand for risks in progress

52,404 62,072 1,622 (146) 54,026 61,926

Claims paid (+) and variation in the provision for claims 216,881 343,580 7,067 7,656 223,948 351,236

Variation in the mathematical reserve

Variation in other technical provisions

Participation of reinsurance in fees and expenses(+) 94,903 88,461 510 727 95,413 89,188

Others

RESULT OF RETROCEDED REINSURANCE (77,675) 83,262 (2,286) (4,818) (79,961) 78,444Amounts in EUR thousands

6.18 FISCAL SITUATION

From the 2002 financial year, MAPFRE RE forms part of the companies that are included, to the

Corporation Tax effect, under Fiscal Group number 9/85, the said group being formed by MAPFRE

S.A. and its subsidiaries meeting the requirements to be subject to the said tax regime.

Elements of expense from income tax and reconciliation of the accounting result with the tax cost of ongoing concernsA detail is provided below, for financial years closed as at 31 December 2006 and 2005, of the

main elements of expense from income tax of ongoing concerns and the reconciliation between

the expense from income tax and the product of multiplying the accounting result by the

applicable tax rate.

The Group has made the reconciliation by adding reconciliations made separately using the

national rates of each country.

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Concept Financial Year 2006 Financial Year 2005

Result before taxes, ongoing concerns 115,769 63,271

35% of result before taxes, ongoing concerns (40,519) (22,144)

Tax effect of permanent differences 5,497 1,305

Tax effect from tax rates different from 35% 116 (1,302)

Expense/Revenue from current tax originating in the year (19,517)

Expense/Revenue from current tax originating in previous years

Profits from previous periods not recognised previously due to the use of negative tax bases, deductions pending application or temporary differences. (3,689) (2,624)

TOTAL (38,595) (22,141)


The amounts relating to expenses or revenues from current taxes correspond to amounts to be

paid to or recovered from the Treasury, corresponding to the tax result for the period.

The amounts of deferred expenses or revenues correspond to amounts to be paid to or recovered

from the Treasury in future financial years.

The following tables provide a breakdown of movements for financial years 2006 and 2005 of

the deferred tax assets heading, detailing their amount in relation to items directly debited or

credited to equity accounts in each financial year.

FINANCIAL YEAR 2006

Concepts

Openingbalance

financial year 2006

adjust to

opening balance

Changes in

perimeter

From

Canc.

Closingbalance

financial year 2006

Results Equity

Valuation difference in financial investments 592 (62) (530)

Embedded derivatives

Valuation difference in mathematical reserves

Valuation difference in death provisions

Tax credits on negative tax bases 6,810 (710) (3,267) 137 2,833

Tax credits (Deductions pending and others, etc)

Others 5,141 2,299 (741) 6,836

TOTAL DEFERRED TAX ASSETS 12,543 1,527 (4,008) (393) 9,669


FINANCIAL YEAR 2005

Concepts

Openingbalance

financial year 2006

adjust to

opening balance

Changes in

perimeter

From

Canc.

Closingbalance

financial year 2006

Results Equity

Valuation difference in financial investments 592 592

Embedded derivatives

Valuation difference in mathematical reserves

Valuation difference in death provisions

Tax credits on negative tax bases 3,439 532 2,839 6,810

Tax credits (Deductions pending and others, etc)

Others 5,047 (69) (15) 178 5,141

TOTAL DEFERRED TAX ASSETS 8,486 463 2,824 770 12,543


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The breakdown of the heading “Others”, in its most significant amounts of the last two financial

years, is as follows:

Financial year 2006

– Foreign taxes– Prepaid taxes from pension related

commitments

EUR 3.957 thousands

EUR 2.140 thousands

Financial year 2005

– Foreign taxes– Prepaid taxes from pension related

commitments

EUR 2.006 thousands

EUR 2.479 thousands

The variation in the valuation of deferred tax assets arising from changes in the tax rate during

financial year 2006 has amounted to EUR 0.11 million.

Deferred tax assets of the fully consolidated companies, as a consequence of negative tax bases

pending application and of the temporary differences accumulated as at 31 December 2006 and

2005 amount to EUR 9.85 million and EUR 17.49 million, respectively. Of the total amount of

deferred tax assets, EUR 9.67 million have been recorded in the balance sheet and in the equity

or results accounts as at 31 December 2006, and EUR 12.54 million as at 31 December 2005.

The Company reckons that there will be future tax profits against which to offset the deferred tax

assets recorded in financial years 2006 and 2005. The said expectation is based on projections

made, based on the past historical experience and drafted according to reasonable assumptions,

deriving from past occurrences.

The following tables show the movements of the deferred tax liabilities heading for financial

years 2006 and 2005.

FINANCIAL YEAR 2006

Concepts

Openingbalance

financial year 2006

adjust to

opening balance

Changes in

perimeter

From

Canc.

Closingbalance

financial year 2006

Results Equity

Valuation difference in financial investments 9,941 (244) (38) (268) (72) 9,319

Embedded derivatives 23 (9) 14

Stabilisation and catastrophic provision (elimination) 6,706 10,415 17,121

Others 3,479 (330) (1,876) (280) 993

TTOTAL DEFERRED TAX LIABILITIES 20,149 (574) 8,492 (548) (72) 27,447


FINANCIAL YEAR 2005

Concepts

Openingbalance

financial year 2006

adjust to

opening balance

Changes in

perimeter

From

Canc.

Closingbalance

financial year 2006

Results Equity

Valuation difference in financial investments 11,124 (343) (125) 147 (875) 9,941

Embedded derivatives 23 23

Stabilisation and catastrophic provision (elimination) 19,708 (3,747) (10,012) 5,949

Others 1,900 292 973 327 3,479

TTOTAL DEFERRED TAX LIABILITIES 32,732 (51) (3,872) (8,869) (548) 19,392


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The breakdown of the heading “Others” in the last two years is as follows:

Financial year 2006

– Elimination of losses in investments available for sale for EUR 348 thousands.– Elimination of exchange differences in monetary items for EUR 198 thousands.– Elimination of forex translation differences for EUR 96 thousands.– Tax liabilities of subsidiaries for EUR 351 thousands.

Financial year 2005

– Elimination of forex translation differences for EUR 245 thousands.– Tax liabilities of subsidiaries for EUR 3,234 thousands.

The variations in the measurement of deferred tax liabilities arising from changes in the tax rate

during financial year 2006 have amounted to EUR 2.26 million.

All the deferred tax liabilities of fully consolidated companies as a result of taxable temporary

differences accumulated as at 31 December 2006 and 31 December 2005 have been recognised

in the balance sheet as at the said dates.

Negative tax bases The breakdown of negative tax bases pending set-off in fully consolidated companies at the end

of the last two financial years is as follows:

FINANCIAL YEAR 2006

Financial yearof generation

Deadline for application

Amounts of negative tax bases Deferred tax asset

Applied in the year Pending application Recorded Not recorded

1998 2015 956 – – –

1999 2019 1,171 7,815 2,736 –

2000 2020 278 97 –

2003 2008 – 61 – 21

2004 2009 – 154 – 54

2005 2010 7,459 289 – 101

TOTAL 9,586 8,597 2,833 176


FINANCIAL YEAR 2005

Financial yearof generation

Deadline for application

Amounts of negative tax bases Deferred tax asset

Applied in the year Pending application Recorded Not recorded

1998 2015 956 351 605

1999 2015 9,574 3,511 6,063

2000 2015 291 109 182

2005 2015 7,741 2,839 4,902

TOTAL 18,562 6,810 11,752


Deferred tax assets have been accounted for in relation to negative tax bases pending set-off

in consolidated companies, as they correspond with negative tax bases generated as a result

of unusual management events and future tax profits are likely to exist against which they may

be offset.

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The detail of tax incentives in fully consolidated companies for financial years 2006 and 2005 is

as follows:

DETAIL OF TAX INCENTIVES - FINANCIAL YEAR 2006

Type Financial year to which they relate

Amount applied in the financial

year

Amount pending

applicationAmount not

recordedPeriod for allocation

Tax relief on investments

Creation of employment

Others 2006 8 10 YEARS


DETAIL OF TAX INCENTIVES - FINANCIAL YEAR 2006

Type Financial year to which they relate

Amount applied in the financial

year

Amount pending

applicationAmount not

recordedPeriod for allocation

Tax relief on investments

Creation of employment

Others 2005 12 10 YEARS


For the consolidation of the entitlement to the deductions applied by consolidated Spanish

companies, the equity elements earmarked to them must remain in operation within their assets,

generally, during a period of five years or during their useful life, should this be shorter.

In financial year 2003, the controlling Company allocated income amounting to EUR 1.09 million

from the sale of shares in ITSEMAP, Servicios Tecnológicos MAPFRE, to deduction on reinvestment

of extraordinary profits as laid down in article 42 of Royal Decree-Act 4/2004, generating a

deduction in the Corporation Tax base for 2003 of EUR 0.18 million.

On 31 January 2003, a capital increase was carried out at the controlling Company, to which

CORPORACIÓN MAPFRE contributed the building of Paseo de Recoletos no. 25 in Madrid.

This was a non monetary contribution that was made under the special Regime provided for

in Chapter VII of title VIII of Royal Decree-Act 4/2004, approving the consolidated text of the

Corporation Tax Act.

As a result of the said transaction, the controlling Company incorporated into its assets the mentioned

building, which was purchased by CORPORACIÓN MAPFRE, S.A. on 27 December 2000, on the

occasion of the overall assignment of assets and liabilities of INCALBARSA, S.A., a transaction that in

turn was made subject to the special Regime of Chapter VII of the said Royal Decree Act.

The said property was recorded for the amount of EUR 30,000,000.81, with a depreciation being

allowed in years 2003 and 2004 amounting to EUR 0.56 million. The said property was accounted

for at CORPORACIÓN MAPFRE in the amount of EUR 11,868,822.10 and the accumulated depre-

ciation up to the contribution date amounted to EUR 1,567,104.37.

In accordance with the legislation in force, the tax returns filed for the different taxes may not

be considered as definitive until they have been inspected by the tax authorities or until the

prescription period of four years has elapsed.

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As at 31 December 2006, the fully consolidated Spanish companies have open to inspection all

the taxes to which they are subject for financial years 2002 to 2006.

Some Group companies have been subject to inspection proceedings that ended in assessments

signed in disagreement. These assessments have been appealed against and at the closing date

of both financial years they are pending resolution. In the opinion of the Group’s advisers, the

likelihood of significant fiscal liabilities arising in this concept is remote.

6.19 REMUNERATION TO STAFF AND RELATED LIABILITIES

Staff expensesThe breakdown of staff expenses in the last two financial years is shown in the following table:

ConceptAmount

2006 2005

Short term remuneration 18,360 16,919

Wages and salaries 14,601 13,991

Social security 1,929 1,755

Other remuneration 1,830 1,373

Post-employment benefits 793 1,267

Defined contribution commitments 159 115

Defined benefit commitments 634 1,152

Other long term benefits – –

Termination benefits 1,074 –

Total 20,227 18,186


Post-employment benefitsThe defined benefit plans in force are measured pursuant to the provisions detailed in the

accounting policies, and in Spain they are those where the benefit is determined according to

end salaries, with a benefit paid as a for life annuity, subject to review according to the annual

consumer price index (CPI) or by way of a benefit in the form of capital. On the other hand, all

plans are instrumented through insurance policies.

In order to honour the pension related commitments undertaken in relation to the Lisbon office,

pursuant to the actuarial studies carried out, the controlling Company has allocated a provision

covering the risks of retirement payments and retirement and widowhood complements. The

method to estimate and calculate the provisions has consisted of projecting salaries to the

retirement date and determining the present value of the part already accrued for rendered

services, using the individual capitalisation system, for amounts of EUR 0.01 million and EUR

0.09 million as at 31 December 2006 and 2005, respectively.

The following tables show the components of the net amount of expenses and revenues

recognised in the consolidated income statement and the amounts recognised in the consolidated

balance sheet for the respective defined benefit plans and their movement throughout the year,

as well as the most significant actuarial assumptions used in determining the present value of

the obligations.

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Amounts recognised in the balance sheetIn Spain, the liabilities in relation to defined benefit plans amount to EUR 5.92 million as at 31

December 2006, there being no recognised assets for these plans since they have been fully

externalised by means of a policy written with MAPFRE VIDA, a related company, with the fair

value of the reimbursement rights on the said dates amounting to EUR 5.69 million.

On the other hand, there are liabilities in relation to pension commitments that are externalised

with earmarked insurance policies with a value of EUR 0.42 million as at 31 December 2006, and

with their reimbursement rights having a fair value of EUR 0.66 million.

The reconciliation in 2006 of the present value of the obligation arising from defined benefit

plans is detailed below.

Concept Amount

Present value of obligation as at 1.1.2006 6,419

Cost of services in the year under review 761

Interest cost 224

Contributions made by plan members

Actuarial losses and gains (98)

Changes from variations in exchange rates

Benefits paid (48)

Cost of past services

Reductions (19)

Present value of obligation as at 31.12.2006 7,239


The following table details the reconciliation in 2006 of the opening and closing balance of assets

earmarked to the plan.

Concept Amount

Value of reimbursement right as at 1.1.2006 5,689

Expected return from plan assets 231

Actuarial losses and gains 20

Changes from variations in the Exchange rate

Contributions made by employer 589

Contributions made by plan members

Benefits paid (48)

Business combinations

Liquidations

Value of reimbursement right as at 31.12.2006 6,481


Amounts recognised in the consolidated income statementThe following table details the amounts recognised in the consolidated income statement of

financial year 2005.

Concept Year 2005

Cost of services in the current year 762

Interest cost of obligations (externalised and non externalised) 160

Cost of past services recognised in the year –

Other concepts 230

TOTAL EXPENSE RECOGNISED IN THE INCOME STATEMENT 1,152


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Concept Year 2006

Cost of services in the current year 761

Interest cost 224

Expected return from plan assets

Return expected from any right to reimbursement recognised as an asset (231)

Actuarial losses and gains (78)

Cost of past services

Effect of any reduction or liquidation

Other concepts (42)

TOTAL EXPENSE RECOGNISED IN THE INCOME STATEMENT 634


The amount included under “Other concepts” basically relates to actuarial losses and gains

recognised in the year or arising from reductions and liquidations.

ReturnsThe real return of the plan assets, as well as any right to reimbursement recognised as an asset

pursuant to the provisions of IAS 19.104a, has amounted to EUR 0.26 million in 2006.

AssumptionsThe most significant actuarial assumptions used in Spain and at the balance sheet date of finan-

cial years 2006 and 2005 are as follows:

Concept 2006 2005

DEMOGRAPHICAL ASSUMPTIONS

Mortality tables GKM/F–95 GKM/F–95

Survival tables PERMI/F–2000 PERMI/F–2000

FINANCIAL ASSUMPTIONS

Discount rate 3–3.91% 3–3.76%

Average annual salary increase 3% 5%

Average annual CPI 3–5% 3%

Expected return from plan assets/reimbursement rights 3.54% 3.54%

EstimatesThe entity’s best estimate of the contributions to the plan in 2007 has been made according to

the staff existing at the Group as at 31 December 2006 and amounts to EUR 0.61 million.

Staff numbersThe following table shows the average number of employees by geographical segment in the

last two financial years

FINANCIAL YEAR 2006

Concepto Total

SPAIN 119

OTHER EUROPEAN UNION COUNTRIES 28

AMERICA 95

REST OF THE WORLD 8

AVERAGE TOTAL NUMBER OF EMPLOYEES 250

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FINANCIAL YEAR 2005

Concepto Total

SPAIN 111

OTHER EUROPEAN UNION COUNTRIES 39

AMERICA 93

REST OF THE WORLD 8

AVERAGE TOTAL NUMBER OF EMPLOYEES 251

6.20 NET RESULTS ON EXCHANGE DIFFERENCES

Positive exchange differences other than those arising from financial instruments measured

at fair value, allocated to the income statement, amount to EUR 81.65 million and EUR 54.31

million in the 2006 and 2005 financial years, respectively.

Negative exchange differences other than those arising from financial instruments measured

at fair value, allocated to the income statement, amount to EUR 82.50 million and EUR 59.44

million in the 2006 and 2005 financial years, respectively.

The reconciliation of the forex translation differences recognised in equity at the beginning and

the end of the year, in 2006 and 2005, is shown below.

ItemsAmount

2006 2005

Forex translation differences at beginning of year 23,414 (8,881)

Net exchange differences on translation of financial statements (9,359) 32,295

Forex translation differences at year end 14,055 23,414


As at 31 December 2006 and 2005, net exchange differences arising from the translation into

Euros of the financial statements of those SISTEMA MAPFRE companies whose functional

currency is not the Euro are:

FULLY CONSOLIDATED COMPANIES

Company Country Currency

Forex translation differences

Positive Negative Net

2006 2005 2006 2005 2006 2005

Inversiones Ibéricas Chile Chilean Peso

1,201 4,840 1,201 4,840

Mapfre Chile Reas Chile Chilean Peso

1,501 7,168 1,501 7,168

Inversiones Mapfre Re Colombia Colombian Peso 566 667 566 667

Mapfre Re Holding USA Dólar USA 7,970 (4,626) (4,626) 7,970

Ciar Bélgica Euro (138) (138)

Mapfre RE España Euro 15,413 2,907 15,413 2,907

TOTAL 18,681 23,552 (4,626) (138) 14,055 23,144


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The result recognised directly in equity arising from the revaluation of non-monetary items in

the last two years is shown below.

EXCHANGE DIFFERENCES ACCOUNTED FOR DIRECTLY IN EQUITY

Company Geographical area

Forex translation differences

Positive Negative Net

2006 2005 2006 2005 2006 2005

MAPFRE HOLDINGS USA – 439 – – – 439

MAPFRE RE ESPAÑA – 17 (304) – (304) 17

TOTAL 456 (304) – (304) 456


6.21 CONTINGENT ASSETS AND LIABILITIES

At the closing of financial years 2006 and 2005 and until the preparation of the financial

statements, there is no evidence of the existence of contingent assets and liabilities for

significant amounts.

6.22 TRANSACTIONS WITH RELATED PARTIES

All transactions with related parties have been carried out in market conditions.

Transactions with Group companiesThe transactions carried out between Group companies, with a null effect on results as they

have been eliminated in the consolidation process, are detailed below:

ConceptExpenses Revenues

2006 2005 2006 2005

Received/provided services and other expenses/revenues 2,160 5,530 1,247 1,611

Expenses/revenues from investment property – –

Expenses/revenues from investments and financial accounts 7,440 25 324 14,594

Dividends received 3,517 9,169

TOTAL 9,600 5,555 5,088 25,374


The amounts recorded as a consequence of transactions carried out during the year with higher

consolidatable groups are shown below.

ConceptExpenses

2006 2005

Expenses and revenues from investment property –

Expenses and revenues from investments and financial accounts –

External services and other non technical expenses/revenues 3,650 9,710

Dividends paid 32,378 26,664

TOTAL 36,028 36,374


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Reinsurance and coinsurance transactionsReinsurance and coinsurance transactions carried out between companies of the consolidatable

Group, eliminated in the consolidation process, are shown below

ConceptExpenses Revenues

2006 2005 2006 2005

Premiums ceded/accepted 29,205 35,943 29,344 37,084

Claims 40,839 42,539 41,220 42,637

Variation in technical provisions 74 1,896 –

Fees 1,747 4,733 1,190 4,367

Other technical expenses and revenues – 1,449

TOTAL 71,865 85,111 71,754 85,537


Reinsurance transactions carried out with companies of the higher consolidatable Groups are

shown below.

Concept

Revenues/(Expenses)

Accepted reinsurance Ceded reinsurance

2006 2005 2006 2005

Premiums 583,175 557,006 (37,400) (35,101)

Claims (432,674) (249,730) 59,521 27,961

Fees (163,200) (153,557) 5,449 2,391

TOTAL (12,699) 153,719 27,570 (4,749)


The following tables detail the balances with reinsurers and ceding companies, deposits established

and technical provisions on reinsurance transactions with companies of the consolidatable Group,

eliminated in the consolidation process, as well as with the higher consolidatable Groups:

Concept

Eliminated balances Non eliminated balances

Accepted reinsurance Ceded reinsurance Accepted reinsurance Ceded reinsurance

2006 2005 2006 2005 2006 2005 2006 2005

Credits and debts (498) (1,661) 470 (360) 41,227 37,800 (232) 3,324

Deposits (2,067) (1,788) 2,080 1,673 178,779 171,723 (569) (320)

Technical provisions 8,837 108,715 (9,030) (108,562) (656,446) (615,166) 14,842 62,657

TOTAL (6,272) 105,266 (6,480) (107,249) (436,440) (405,643) 14,041 65,661


Remuneration of key managerial staffThe following table details the remuneration earned in the last two financial years by key

managerial staff (understanding as such the members of the Board of Directors, of the

Management Committee and of the Delegate Committees of the controlling Company):

ConceptAmount

2006 2005

Short term remuneration

Salaries 670.91 590.07

Fixed allowances 204.6 200.71

Attendance fees 44.64 42.50

Life insurance 19.23 28.11

Other concepts 43.10 28.69

Post-employment

Defined contribution 27.63 26.25

Defined benefits 453.36 365.42

Other long term benefits – –

Total 1,463.47 1,281.75Amounts in EUR thousands

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External directors’ basic remuneration consists of a fixed annual allowance for their belonging

to the Board of Directors, which amounted to EUR 20,000 in 2005 and to EUR 20,460 in 2006.

In addition, they benefit from a Life insurance policy with an insured capital of EUR 150,253.03

and enjoy some of he benefits extended to staff, such as medical insurance.

External directors belonging to Commissions or Delegate Committees also receive an

attendance allowance, which in 2005 amounted to EUR 2,500 and in 2006 to EUR 2,625.

Executive directors receive the remuneration established in their contracts, including fixed

salary, bonuses with varying amounts linked to results, life and disability insurance, and other

benefits generally established for the Entity’s staff; in addition, certain pension complements

have been acknowledged to them for the event of retirement, externalised through a life

insurance policy, it all according to the remuneration policy established by the Group for its

senior managerial staff, whether or not they are directors. Executive directors, however, are not

entitled to the remuneration established for external directors.

6.23 GRANTS

An official grant was received amounting to EUR 26 thousands and EUR 31 thousands in financial

years 2006 and 2005, respectively.

Concept 2006 2005

As at 1 January 0 0

Received during the year 26 31

Transferred to the income statement 26 31

As at 31 December 0 0


There is no failure in complying with the conditions or contingencies related to these grants.

7. Risk management

RISK MANAGEMENT POLICIES AND HEDGING ACTIVITIES

Risk types and methodologyMAPFRE has designed a Risk Management System (SGR) based on the integrated management

of each and every one of the entity’s business processes, and on the adequacy of the risk level

to the established strategic objectives. The different types of risks have been grouped under four

areas, or categories, as detailed below:

Operational RisksIncludes twenty-three types of risks grouped under the following areas: actuarial, legal, technology, staff, collaborators, procedures, reporting, fraud, market and tangible assets.

Financial Risks Includes interest rate, liquidity, exchange rate, investment and credit risks.

Insurance Activity RisksIt groups, separately for Life and Non Life, risks arising from inadequacy of premiums, technical provisions and reinsurance.

Strategic and Corporate Governance Risks

Includes the corporate ethics and corporate governance risks, and risks on organisational structure, alliances, mergers and acquisitions, regulatory and, lastly, market and competition risks.

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Centralisation of the Risk Management SystemThe structure of the MAPFRE Group is based on Units and Operating Companies having a high

degree of autonomy in their management. MAPFRE’s governance and management bodies

approve the lines of action of the Units and Companies as regards risk management, and

permanently supervise their risk exposures, through indicators and ratios. In addition, there

are general action guidelines in order to mitigate risk exposure, such as maximum levels of

investment in equities or credit rating of reinsurers.

The Economic and Management Control Area, through the Risk Management, coordinates the

activities related to the quantification of risks and, in particular, the implementation of capital

models in the operating units, designed to comply with the future Solvency II requirements.

Operating Units have a Risk Coordinator, reporting to the Administration Management, for the

implementation of risk policies and management in each unit. These activities are coordinated

through a Monitoring Committee for the implementation of the Risk Quantification Models,

which meets monthly. The degree of progress in projects and other significant aspects are

reported to MAPFRE’s Senior Management through the Audit Committee.

In general terms, decisions on the underwriting of insurable risks and reinsurance covers

are highly decentralised in the Units. The aspects related to Operational Risk are supervised

centrally, although their implementation and monitoring are delegated on the Units. The

management of Strategic and Corporate Governance risks is highly centralised. Financial risks

are managed centrally through the Group’s Investment General Management

Estimation of Risks and CapitalsMAPFRE has in place an internal capitalisation and dividend policy aimed at providing the Units,

rationally and objectively, with the required capital to meet the risks they have assumed. Risk

estimation is made by means of a standard fixed factors model that quantifies financial risks,

credit risks and insurance activity risks. This benchmark will be subsequently replaced with that

of each Unit’s own model. In addition, the level of capital allocated to each Unit will never be

lower than the legally required minimum from time to time plus a margin of 10%.

Allocated capital is fixed pursuant to an estimation based on the budgets for the following year

and is revised at least once a year, depending upon the evolution of risks.

Certain units require a capitalisation level higher than that arising from the above described

general rule, either because they operate in other countries with different legal requirements,

or because they require a financial solvency rating inherent in higher capitalisation levels. In

these cases, MAPFRE’s Management Committee determines the capitalisation level on a case

by case basis, or grants additional guarantees that strengthen the capitalisation levels paying

attention to each unit’s peculiarities.

Operational RiskThe identification and assessment of Operational Risk are carried out by means of the computer

application Riskm@p, developed by MAPFRE, wich, prepares the entities´Risk Maps.

The proposed Risk Management System is based on a dinamic analysis by processes, in

such a way that the managers of each area or department carry out an annual identification

and assesment of the potential risk affecting the following processes: Product development,

Underwriting, Claims/ Benefits, Administrative, Management, Marketing Activities, Human

Resources, Commissions, Coinsurance/ Reinsurance, Technical Provisions, Investments, IT

Systems and Client Service.

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Financial RisksAs regards financial investments, MAPFRE’s policy for mitigating its exposure to this type of

risks is based on a prudent investment policy, which concentrates most of the portfolio in fixed

income securities.

With respect to credit risk, MAPFRE’s policy is based on prudence (issuer’s solvency) and on the

diversification of fixed income investments. Thus, the fixed income securities portfolio in Europe

is divided, roughly, as to half in securities guaranteed by European Union States, and the other

half in securities issued by corporations having high credit ratings.

Both for fixed income and equity investments, diversification criteria are applied by activity

sectors and maximum risk limits by issuer.

Insurance Activity RisksThe organisation of MAPFRE, based on Units and Companies specialising in various business

lines, requires them to be highly autonomous in their business management, in particular in

the underwriting of risks and tariff fixing, as well as the indemnities or provision of services

in the case of occurrences. Premium adequacy is a particularly important element, and its

determination is supported by reports from independent experts in the units or situations when

circumstances make it thus advisable.

The handling of claim related benefits, as well as the adequacy of provisions, are basic principles

of insurance activity. Technical provisions are estimated by the actuarial teams of the different

Units and Companies, and their adequacy is ratified by reports from independent experts

whenever required. The prevalence of the personal damages line in MAPFRE, with very short

times for the settlement of claims, as well as the scant importance of insured long-tail risks,

such as asbestos or professional liability, are elements mitigating this type of risk.

MAPFRE’s presence in countries with greater possibilities of occurrence of catastrophes

(earthquakes, hurricanes, etc.) requires special treatment of this type of risks, which, considering

their frequency and intensity, may give rise to volatility in results or need of additional capitals.

The Units and Companies operating in this type of risks, essentially MAPFRE AMÉRICA

and MAPFRE RE, count on expert reports on catastrophe exposure, generally prepared by

independent experts, which estimate the impact on insured assets in the event of occurrence of

catastrophes. This information allows underwriting catastrophic risks according to each entity’s

financial capabilities and, if applicable, taking reinsurance covers that may limit their impact

on equity. In this connection, it is important to highlight the contribution of MAPFRE RE, which

provides the Group with its extensive experience in the catastrophic risk market.

In relation to reinsurance risk, MAPFRE’s policy is to cede business to reinsurers with proven

financial capacity (minimum A credit rating by Standard & Poor’s).

Strategic and Corporate Governance RisksThe ethical principles applied to corporate management have been a constant at MAPFRE and

form part of its bylaws and of its day to day duty. In order to standardise this corporate culture

and adapt it to the legal governance and transparency requirements in management, MAPFRE’s

Management Bodies have approved in 2005 a revised version of the Good Governance Code,

initially implemented in 1999. The strict application of Good Corporate Governance principles is

considered by MAPFRE as the most efficient way for mitigating this type of risks.

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INSURANCE RISK

Sensitivity to insurance riskThe sensitivity to insurance risk measures the impact on economic capital of upward and

downward fluctuations of the conditioning factors for the said risk (number of insured risks,

value of average premium, frequency and cost of claims). A measure of sensitivity to the Non

Life insurance risk is the impact that the variation of a percentage point in the combined ratio

would have on the results of the year and, consequently, on equity. This information is detailed

in the following table, together with the volatility index of the said ratio, calculated according to

its standard deviation in a five-year time horizon.

ConceptImpact on results of a 1% variation in the

combined ratio non lifeIndex of volatility

of the combined ratio

2006 2005 2006 2005

TOTAL 5,574 5,364 3.8% 8.4%


Concentration of insurance riskMAPFRE has carried out a policy of insurance risk diversification operating in virtually all

insurance lines in Spain and extending its scope of action to the international markets, mainly

in Latin American countries.

The Group has in place internal control mechanisms or procedures allowing it to identify all

types of concentration of the insurance risk.

It is usual practice to use reinsurance contracts as an element that mitigates the insurance risk arising

from concentration or accumulation of guarantees exceeding the maximum acceptance levels.

A) PREMIUM AMOUNTS PER RISKS

The following tables show the revenues arising from written premiums classified according to

the business risk in the last two financial years:

FINANCIAL YEAR 2006

Concepto


Life

Non life

Catastrophe risk Other risks

Written premiums accepted reinsurance 101,020 187,184 1,149,430


FINANCIAL YEAR 2005

Concepto


Life

Non life

Catastrophe risk Other risks

Written premiums accepted reinsurance 95,733 154,983 1,086,753


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B) AMOUNTS OF PREMIUMS PER GEOGRAPHICAL AREAS

The following tables show the revenues arising from written premiums corresponding to

accepted reinsurance per geographical areas in the last two financial years.

FINANCIAL YEAR 2006

Ordinary revenuesReinsurance

Life Non life

SPAIN 34,174 548,184

OTHER EUROPEAN UNION COUNTRIES 10,460 349,861

AMERICA 50,572 324,705

REST OF THE WORLD 5,814 113,864

TOTAL 101,020 1,336,614


FINANCIAL YEAR 2005

Ordinary revenuesReinsurance

Life Non life

SPAIN 36,027 498,733

OTHER EUROPEAN UNION COUNTRIES 8,528 311,609

AMERICA 43,497 334,475

REST OF THE WORLD 7,681 96,919

TOTAL 95,733 1,241,736


C) AMOUNTS OF PREMIUMS PER CURRENCY

Moneda 2006 2005

VENEZUELAN BOLIVAR 48,874 38,191

AUSTRALIAN DOLLAR 16,417 16,448

CANADIAN DOLLAR 7,447 6,331

US DOLAR 219,402 223,338

EURO 834,189 761,217

SWISS FRANC 16,352 18,205

STERLING POUND 36,533 33,114

TURKISH LIRA 14,563 12,621

ARGENTINEAN PESO 18,557 16,068

COLOMBIAN PESO 36,503 37,731

CHILEAN PESO 43,251 44,623

MEXICAN PESO 35,218 29,675

JAPANESE YEN 21,878 20,425

REST 88,478 85,813

TOTAL 1,437,662 1,337,469


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Credit riskThe following table shows the maximum level of exposure to credit risk and reinsurers’ credit

rating in the last two financial years

Concept

Book value

Total

Companies

Group Non group

2006 2005 2006 2005 2006 2005

Participation of reinsurance in technical provisions 18,707 57,192 506,530 485,633 525,237 542,825

Credits from reinsurance operations 478 4,164 22,632 6,209 23,110 10,373

TOTAL DEBTOR POSITIONS 19,185 61,356 529,162 548,347 553,198

Deposits received from ceded and retroceded reinsurance 627 320 142,736 134,504 143,363 134,824

Debs from reinsurance operations 774 974 48,111 37,779 48,885 38,753

TOTAL CREDITOR POSITIONS 1,401 1,294 190,847 172,282 192,248 173,577

TOTAL NET POSITION 17,784 60,061 338,315 319,559 356,099 379,621Amounts in EUR thousands

Reinsurers’ credit rating

Book value

Total

Companies

Group Non group

2006 2005 2006 2005 2006 2005

AAA 20,258 39,652 20,258 39,652

AA 4,287 52,314 104,689 91,178 108,976 143,492

A 184,397 153,860 184,397 153,860

BBB 7,476 33,028 7,476 33,028

BB OR LOWER 21,495 122 21,495 122

WITHOUT CREDIT RATING 13,497 7,747 – 1,719 13,497 9,467

TOTAL 17,784 60,061 338,315 319,559 356,099 379,621


The balances corresponding to credits from reinsurance transactions amount to EUR 147.25

million and EUR 146.41 million as at 31 December 2006 and 2005, respectively. The impairment

related loss estimate is recorded in the income statement in accordance with the rules laid

down in accounting policy 5.5.

The following table provides significant information of the last two financial years in relation to

the credit risk of fixed income securities

Credit rating of issuers

Book value

Portfolio available for sale

2006 2005

AAA 487,119 424,838

AA 395,196 369,871

A 180,438 174,303

BBB 7,947 3,698

BB or lower 22 28

Without credit rating 30,465 40,704

TOTAL 1,101,187 1,013,442


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Liquidity RiskAs regards the liquidity risk, MAPFRE’s policy is based on maintaining cash balances sufficient

to cover any contingency arising from its obligations vis-à-vis insured parties. Thus, as at 31

December 2006, the cash and cash equivalent balance amounted to EUR 44.71 million (EUR

59.13 million in the preceding year), equivalent to 3% of total financial investments and cash. On

the other hand, as regards life and savings insurance, the investment policy preferably applied

consists of matching the maturities of investments with obligations entered into in insurance

contracts, in order to mitigate the risk exposure. In addition, most fixed-income investments

are traded in organised markets, this providing a large capacity of action in view of potential

liquidity strains.

Assets with maturities exceeding one year are detailed in the section “Interest rate risks”.

Market riskMAPFRE’s General Investment Management carries out a periodical analysis of sensitivity of

financial risk. Among others, the most usual indicators are the modified duration, for fixed-

income securities, and the Value at Risk, for equities.

INTEREST RATE RISK

The following table details the significant information for the last two years regarding the level

of exposure to the interest rate risk of financial assets and liabilities:

Portfolio Fair value (fixed interest rate)

Cash flow (variable interest rate) Not exposed to risk Total

2006 2005 2006 2005 2006 2005 2006 2005

HELD FOR SALE 1,050,174 172,732 51,274 – 154,059 9,077 1,255,507 181,809

TRADING 10,660 926,403 652 87,267 53,046 68,115 64,358 1,081,785

HELD TO MATURITY 113,008 13,052 – – 8,674 38,491 121,682 51,543

TOTAL 1,173,842 1,112,187 51,926 87,267 215,779 115,683 1,441,547 1,315,137


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The following tables show, for financial years 2006 and 2005, the maturities, average interest

rate and modified duration of financial investments:

31 DECEMBER 2006

ConceptClosing balance

Maturity

Interest rate

Modified duration

1 Year 2 Year 3 Year 4 Year 5 Year Beyond or

undated


Fixed Income

Other investments 121,682 109,591 9,054 3,037 3.82

TOTAL PORTFOLIO HELD TO MATURITY

121,682 109,591 9,054 3,037 3.82


Fixed Income 1,101,187 195,745 246,400 150,630 83,552 65,452 359,408 4.27 3.39

Other investments 154,320 154,111 209 3.99

TOTAL PORTFOLIO AVAILABLE FOR SALE

1,255,507 349,856 246,400 150,839 83,552 65,452 359,408 4.23

TRADING PORTFOLIO

Term currency contracts

Swaps

Options

Futures

Others derivatives

Fixed income

Others 64,358 51,640 5,236 7,482 4,75

TOTAL TRADING PORTFOLIO

64,358 51,640 5,236 7,482 4,75


31 DECEMBER 2005

ConceptClosing balance

Maturity

Interest rate

Modified duration

1 Year 2 Year 3 Year 4 Year 5 Year Beyond or

undated


Fixed Income

Other investments 181,809 161,697 6,897 9,824 3,391 – – 2.54%

TOTAL PORTFOLIO HELD TO MATURITY 181,809 161,697 6,897 9,824 3,391 – – 2.54%


Fixed Income 1,013,442 91,287 123,348 92,559 77,774 118,933 509,541 3.79% 3.95%

Other investments 68,343 68,165 – 178 – – – 18.53%

TOTAL PORTFOLIO AVAILABLE FOR SALE 1,081,785 159,452 123,348 92,737 77,774 118,933 509,541 4.72%

TRADING PORTFOLIO

Term currency contracts

Swaps

Options

Futures

Others derivatives

Fixed income

Others 51,543 39,932 8,658 2,953 5%

TOTAL TRADING PORTFOLIO 51,543 39,932 8,658 2,953


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The modified duration is a reflection of the sensitivity of the value of the assets to interest rate

movements, and represents the percentage variation in the fair value of the financial assets per

each percentage point of variation in interest rates. For its calculation, the percentage variation

of each financial asset is weighted against its market value.

FOREIGN EXCHANGE RISK

The following table shows a breakdown of financial investments according to the currencies in

which they are denominated at the closing of the last two financial years.

Currency

Book value

Portfolio held to maturity

Portfolio available for sale Trading portfolio Total

2006 2005 2006 2005 2006 2005 2006 2005

EURO 43,956 84,308 797,365 624,251 44,108 31,479 885,429 740,038

US DOLLAR 55,101 79,083 318,795 333,179 3,068 2,836 376,964 415,098

MEXICAN PESO – 3,161 86 – 3,161 86

BRAZILIAN REAL – – – –

CHILEAN PESO 9,631 9,077 58,494 61,319 11,312 13,052 79,167 83,448

VENEZUELAN BOLIVAR – – – –

ARGENTINEAN PESO – – – –

COLOMBIAN PESO – 338 1,969 – 338 1,969

POUND STERLING 3,556 2,072 18,262 17,194 5,870 4,176 27,688 23,442

CANADIAN DOLLAR 657 – 21,578 20,719 – 22,235 20,719

PHILIPPINES PESO 465 – – – 465 –

PERUVIAN SOL – – – –

OTHER CURRENCIES 8,316 7,269 37,514 23,068 – 46,100 30,337

TOTAL 121,682 181,809 1,255,507 1,081,785 64,358 51,543 1,441,547 1,315,137


Currency

Technical provisions

Direct and accepted insurance (1) Ceded and retroceded insurance (2) Net total (1)-(2)

2006 2005 2006 2005 2006 2005

EURO 1,047,738 867,222 449,200 464,337 598,539 402,885

US DOLLAR 274,005 356,828 52,879 56,513 221,127 300,315

MEXICAN PESO 22,986 29,462 3,460 2,836 19,526 26,626

BRAZILIAN REAL 1,777 1,548 157 203 1,620 1,345

CHILEAN PESO 42,289 92,249 4,684 2,542 37,604 89,707

VENEZUELAN BOLIVAR 24,477 16,177 792 586 23,685 15,591

ARGENTINEAN PESO 11,144 9,406 262 435 10,882 8,971

COLOMBIAN PESO 36,622 34,874 1,763 2,296 34,859 32,578

POUND STERLING 37,847 31,850 4,720 5,403 33,127 26,447

CANADIAN DOLLAR 3,982 4,375 305 807 3,677 3,568

PHILIPPINES PESO 3,118 2,374 335 204 2,784 2,170

PERUVIAN SOL 44 44 8 3 35 41

OTHER CURRENCIES 150,211 135,560 6,672 6,660 143,539 128,900

TOTAL 1,656,241 1,581,969 525,237 542,825 1,131,004 1,039,144


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PROPERTY RISK

MAPFRE has property assets representing approximately 3.88% of total investments and cash,

of which approximately 1.93% corresponds to own offices. The said assets meet the double

function of being an administration and sales support, as well as generating financial revenues

and diversifying investments. This policy on tangible investments has allowed MAPFRE to realise

gains in property when market circumstances make it advisable and, in addition, to count on

unrealised gains that might be used to neutralise adverse risk situations for the Group in the

future. Their detail is shown below:

ConceptBook value Market value

2006 2005 2006 2005

Investment property 35,183 39,725 36,814 40,670

Property for own use 34,673 35,184 40,904 38,243

TOTAL 69,856 74,909 77,718 78,913


Therefore, unrealised property gains would offset a fall in the price of properties equivalent to

approximately 10% of their market value.

IMPLEMENTATION OF OWN CAPITAL MODELS

During 2005, MAPFRE RE implemented its own capital model, which, by means of a stochastic

process, determines the required solvency level according to the risks assumed by the entity.

This model forms part of an overall project consisting of implementing stochastic models at the

MAPFRE Group, in order to comply with the future Solvency II European regulations. This pilot

project will act as test for its latter extension to the other group entities.

The Capital model is based on the stochastic generation of projections of the company’s income

statement from the simulation of 10,000 different scenarios, applied taking into account the

peculiarities of the premium portfolio and the investment mix and other assets mix within the

entity; these scenarios are obtained by combining various financial and reinsurance business

assumptions. From that basis, the distribution of probability of results is determined, as well

as the required economic capital in order to ensure the entity’s solvency with a 99.6% range of

reliability in a time horizon of one year. Interim results obtained confirm the level of excellence in

the entity’s capitalisation, and at present they are being compared to other solvency estimation

methods.

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8. Other information

8.1 OTHER DETAILS RELATING TO THE BOARD OF DIRECTORS

The controlling Company’s directors do not hold stakes in the capital of companies having the

same, similar or complementary nature of activity to that of the controlling Company, nor carry

out, either on their own account or on behalf of third parties, the same, similar or complementary

activity to that of the Group companies’ corporate object, with the following exceptions:

Director Company Number of shares/stocks Office/Position

Mr. Ricardo Blanco Martínez Ing Groep 15,432 –

Mr. Pedro José de Macedo Coutinho Munchener Ruck 225 –

Mr. J.Donald Duello

Shelter Mutual Insurance Company – Chairman

Shelter General Insurance Company – Chairman

Shelter Life Insurance – Chairman

Shelter Reinsurance Company – Chairman

MAERP – Director

Mr. Rolf Mehr Vaudoise Assurances Holding – General Manager

Mr. George Andrew Prescott Ecclesiastical Insurance Office Plc – Deputy Group Chief

Executive

Mr. Domingo Sugranyes Bickel

Münchener Ruck 67 –

Aegon NV 320 –

Axa 142 –

Fortis 400 –

ING 440 –

Societa Cattolica di Assicurazione Cattolica Group – Italy – Direttore Centrale

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The following table details the shares in MAPFRE S.A. held by the controlling Company’s directors,

as well as the boards of directors of the MAPFRE GROUP entities of which they are members.

DirectorMAPFRE GROUP

Entities where they form part of the board of directors Number of shares in MAPFRE S.A..

Mr. Ángel Alonso Batres

MAPFRE SEGUROS GENERALES; MAPFRE EMPRESAS; MAPFRE AGROPECUARIA; MAPFRE CONSULTORES; MAPFRE AMERICA; MAPFRE AMERICA VIDA; MAPFRE ASISTENCIA; MAPFRE–CAJA MADRID HOLDING

39,450

Mr. Ricardo Blanco MartínezMAPFRE GUANARTEME; MAPFRE EMPRESAS; MAPFRE SEGUROS GENERALES; MAPFRE CAUCIÓN Y CRÉDITO

140,535

Mr. Lorenzo Garagorri Olavarrieta – 25,000

Mr. Andrés Jiménez Herradón MAPFRE S.A.; MAPFRE AMERICA; MAPFRE AMERICA VIDA, MAPFRE INTERNACIONAL 11,850

Mr. Pedro José de Macedo ConuntinhoMAPFRE EMPRESAS; C.I.A.R; MAPFRE RE HOLDINGS; REINSURANCE MANAGEMENT INC; MAPFRE SEGUROS GERAIS

7,500

Mr. Juan Antonio Pardo Ortiz MAPFRE ASISTENCIA; VIAJES MAPFRE 50,000

Mr. Agustín Rodríguez García MAPFRE S.A. 2,000

Mr. Francisco Ruiz Risueño MAPFRE, S.A.; MAPFRE VIDA 50

Mr. Matías Salva Bennasar MAPFRE S.A.; MAPFRE SEGUROS GENERALES; MAPFRE GUANARTEME; MAPFRE EMPRESAS 194,030

Mr. Domingo Sugranyes Bickel

CARTERA MAPFRE S.L.; MAPFRE S.A.; MAPFRE–CAJA MADRID HOLDING; MAPFRE CAJA SALUD; MAPFRE AMERICA; MAPFRE AMERICA VIDA; MAPFRE ASISTENCIA; MAPFRE INMUEBLES; MAPFRE ASIAN; MAPFRE QUAVITAE; MAPFRE INVERSIÓN DOS

50,000

8.2 FEES ACCRUED BY EXTERNAL AUDITORS

The fees accrued in favour of external Auditors for their account auditing services amount to EUR

272,642 (EUR 236,805 in 2005). There is also an additional amount of EUR 84,423 for services

related to account audits (EUR 195,412 in 2005) and EUR 17,000 (EUR 150,913 in 2005) for other

complementary services provided by them, which figures are not considered to jeopardise the

independence of auditors

8.3 ENVIRONMENTAL ISSUES

The Group companies do not have any environmental related item that might be significant or

should be specifically included in the present financial statements.

9 Aditional note for english translationThese financial statements are presented by applains the International Financial Reporting

Standars adopted by the European Union (I.F.R.S.), consecuently certain practices applaied by

the company maynot conform to generally accepted principles in other countries.

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Holding % Details end financialConsolidation

method or procedureName Country Tax rate Activity

Holder Assets Equity Revenues Result in the year

COMPAGNIE INTENATIONALE D'ASSURANCES ET DE REASSURANCES (CIAR)

45 , Rue de Treves Bruselas (Belgica)

34% Insurance and Reinsurances

Mapfre ReMaplux Re

99.9900%0.0100%

20,905 9,725 2,419 503 A

INVERSIONES IBÉRICAS LTDA Ava. Apoquindo 4499-8º Santiago de Chile (Chile)

17% Financial and Property Mapfre Re 99.9986% 22,819 22,083 865 309 A

MAPRE CHILE REASEGUROS S.A. Avda Apoquindo 4499-8º Santiago de Chile (Chile)

17% Reinsurance Mapfre Re 99.9986% 100,257 41,560 6,965 896 A

INVERSIONES MAPFRE RE Calle 72 10-07 oficina 502, Bogota (Colombia)

35% Securities and Property.Investment and Management

Mapfre ReInv.Ibéricas

94.9000%5.0999%

1,115 1,107 193 45 A

MAPFRE RE HOLDINGS INC . 100 Campus Drive Florham Park New Jersey 07932-1006 (USA)

35% Holding Mapfre Re 100.0000% 61,419 38,487 496 2,381 A

F. ALCORTA S.A. Bouchard 547 piso 14 Buenos Aires (Argentina)

35% Property (in liquidation)

Mapfre Re 99.9000% 9 9 0 0 C

ITSEMAP SERVICIOS TECNOLOGICOS MAPFRE S.A.

Barbara de Braganza 14 Madrid (España)

35% Consultancy Mapfre Re 39.9752% 6,152 2,747 6,022 348 B

MAPFRE RE ASSESORIA LTDA Rua Sao Carlos Do Pinhal 696 3º Andar Sao Paulo (Brasil)

15% Consultancy Mapfre ReItsemap Brasil

99.9998%0.0001%

19 11 58 (11) C

MAPFRE MANDATOS Y SERVICIOS S.A. Bouchard 547 piso 14 Buenos Aires (Argentina)

35% Services Mapfre ReCaja Re Arg.

99.0000%0.9999%

178 64 573 (14) C

MAPFRE COMPAÑÍA DE SERVICIOS GENERALES S.A.

Junior Tarata 16 piso B- Lima (Perú)

30% Consultancy Mapfre ReInv.Ibéricas

98.0000%1.0000%

12 12 0 (27) C

MAPFRE INTERNET S.A. Ctra de Pozuelo a Majadahonda nº 52 Madrid (España)

35% IT Services Mapfre Re 1.0000% 24,886 23,838 7,702 181 C

MAPFRE INFORMATICA A.I.E. Ctra de Pozuelo a Majadahonda nº 52 Madrid (España)


VENEASISTENCIA C.A. Avda. Libertador Penthouse A y B Caracas (Venezuela)

34% Travel Assistance Mapfre Re Hold 0.0020% 1,715 730 1,240 381 C

MAPFRE REINSURANCE CORPORATION 100 Campus Drive Florham Park New Jersey 07932-1006 (USA)

35% Insurance and Reinsurance Mapfre Re Hold 100.0000% 61,357 37,808 496 2,381 A

REINSURANCE MANAGEMENT INC. 100 Campus Drive Florham Park New Jersey 07932-1006 (USA)

35% Insurance and Reinsurance Mapfre Re Hold 100.0000% 1 1 0 0 A

ITSEMAP BRASIL SERVICIOS TECNOLÓGICOS MAPFRE LTDA

Rua Sao Carlos Do Pinhal 696 3º Andar Sao Paulo (Brasil)

15% Consultancy Itsemap S.T.M.M.R. Assesor

99.9792%0.0208%

965 585 1,783 32 C

ITSEMAP CHILE SERVICIOS TECNOLÓGICOS MAPFRE LTDA

Ava. Apoquindo 4499-8º Santiago de Chile (Chile)

17% Consultancy Itsemap S.T.MInv. Ibéricas

75.0000%25.0000%

34 34 0 0 C

CAJA REASEGURADORA DE CHILE Ava. Apoquindo 4499-8º Santiago de Chile (Chile)

17% Reinsurance Inv. M. Chile Re 99.8467% 94,187 27,305 4,564 1,581 A

MAPFRE CHILE SEGUROS, S.A. Ava. Apoquindo 4499-8º Santiago de Chile (Chile)

17% Holding Inv. M. Chile Re 0.0042% 81,077 15,835 167,605 7,519 C

INMOBILIARIA COSTA DE MONTEMAR, S.A. Ava. Apoquindo 4499-8º Santiago de Chile (Chile)

17% Property Inv. Ibéricas 31.4400% 17,713 17,685 816 40 B

INMOBILIARIA TIRILLUCA, S.A. Ava. Apoquindo 4499-8º Santiago de Chile (Chile)

17% Property Inv. Ibéricas 43.7500% 9,082 9,061 30 (93) B

ADMINISTRADORA DE PROPIEDADES Napoleon 3096 Santiago de Chile (Chile)

17% Property Inv. Ibéricas 31.2900% 440 20 977 55 B

COMERCIAL TURISMO, S.A. Napoleon 3096 Santiago de Chile (Chile)

17% Property Inv. Ibéricas 31.2000% 87 (60) 244 (22) B

C R ARGENTINA Bouchard 547 piso 14 Buenos Aires (Argentina)

35% Services, Advisory Services Inv. Ibéricas 99.9000% 113 101 1 (2) A


SUBSIDIARIES AND ASSOCIATED COMPANIES 2006 (apendix 1)

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81






45 , Rue de Treves Bruselas (Belgica)


Mapfre ReMaplux Re

99.9900%0.0100%

20,905 9,725 2,419 503 A

INVERSIONES IBÉRICAS LTDA Ava. Apoquindo 4499-8º Santiago de Chile (Chile)

17% Financial and Property Mapfre Re 99.9986% 22,819 22,083 865 309 A






94.9000%5.0999%

1,115 1,107 193 45 A


35% Holding Mapfre Re 100.0000% 61,419 38,487 496 2,381 A



Mapfre Re 99.9000% 9 9 0 0 C






99.9998%0.0001%

19 11 58 (11) C

MAPFRE MANDATOS Y SERVICIOS S.A. Bouchard 547 piso 14 Buenos Aires (Argentina)

35% Services Mapfre ReCaja Re Arg.

99.0000%0.9999%

178 64 573 (14) C



30% Consultancy Mapfre ReInv.Ibéricas

98.0000%1.0000%

12 12 0 (27) C

MAPFRE INTERNET S.A. Ctra de Pozuelo a Majadahonda nº 52 Madrid (España)


MAPFRE INFORMATICA A.I.E. Ctra de Pozuelo a Majadahonda nº 52 Madrid (España)



34% Travel Assistance Mapfre Re Hold 0.0020% 1,715 730 1,240 381 C


35% Insurance and Reinsurance Mapfre Re Hold 100.0000% 61,357 37,808 496 2,381 A

REINSURANCE MANAGEMENT INC. 100 Campus Drive Florham Park New Jersey 07932-1006 (USA)

35% Insurance and Reinsurance Mapfre Re Hold 100.0000% 1 1 0 0 A




99.9792%0.0208%

965 585 1,783 32 C




75.0000%25.0000%

34 34 0 0 C


17% Reinsurance Inv. M. Chile Re 99.8467% 94,187 27,305 4,564 1,581 A


17% Holding Inv. M. Chile Re 0.0042% 81,077 15,835 167,605 7,519 C


17% Property Inv. Ibéricas 31.4400% 17,713 17,685 816 40 B




17% Property Inv. Ibéricas 31.2900% 440 20 977 55 B



C R ARGENTINA Bouchard 547 piso 14 Buenos Aires (Argentina)


CONSOLIDATION METHOD OR PROCEDURE A Fully consolidated subsidiaries B Associated and investee undertakings consolidated by the equity method C Associated and investee undertakings excluded from consolidation

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45, Rue de Treves Bruselas (Belgica)


Mapfre ReMaplux Re

74.9300%25.0607%

25,160 9,725 2,483 1,335 A

INVERSIONES IBÉRICAS Ava. Apoquindo 4499-8º Santiago de Chile (Chile)

17% Financial and Property Mapfre Re 99.9986% 27,805 27,311 1,231 520 A






94.9000%5.0999%

3,012 3,001 359 (79) A


35% Holding Mapfre Re 100.0000% 324,524 134,840 55,898 (1,603) A



Mapfre Re 99.9000% 10 10 0 (1) C






99.9998% 0.0001%

27 22 43 9 C

MAPFRE MANDATOS Y SERVICIOS S.A. Avda Figueroa Alcorta 3102,Buenos Aires (Argentina)

35% Services Mapfre Re Caja Re Arg.

99.0000% 0.9999%

127 92 606 (11) C



30% Consultancy Mapfre Re Inv.Ibéricas

98.0000% 1.0000%

46 42 85 (40) C

MAPFRE INTERNET S.A. Ctra de Pozuelo a Majadahonda s/n Madrid (España)


MAPFRE INFORMATICA A.I.E. Ctra de Pozuelo a Majadahonda s/n Madrid (España)



34% Travel Assistance Mapfre Re Hold

0.0020% 855 464 731 29 C


35% Insurance and Reinsurance Mapfre Re Hold

100.0000% 324,480 134,859 55,898 (1,603) A

REINSURANCE CORPORATION 100 Campus Drive Florham Park New Jersey 07932-1006 (USA)


100.0000% 1 1 0 0 A




99.9792%0.0208%

686 558 1,621 81 C




75.0000%25.0000%

38 38 0 0 C


17% Reinsurance Inv. M. Chile Re

97.6769% 97,704 29,894 4,433 839 A


17% Holding Inv. M. Chile Re

0.0042% 250,786 36,986 58,057 116 C


17% Property Inv. Ibéricas 31.4400% 21,284 20,495 6,212 547 C




17% Property Inv. Ibéricas 31.2900% 594 (39) 1,149 6 B



CAJA RE ARGENTINA Bouchard 547 piso 14 Buenos Aires (Argentina)



SUBSIDIARIES AND ASSOCIATED COMPANIES 2005 (apendix 1)

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83






45, Rue de Treves Bruselas (Belgica)


Mapfre ReMaplux Re

74.9300%25.0607%

25,160 9,725 2,483 1,335 A

INVERSIONES IBÉRICAS Ava. Apoquindo 4499-8º Santiago de Chile (Chile)

17% Financial and Property Mapfre Re 99.9986% 27,805 27,311 1,231 520 A






94.9000%5.0999%

3,012 3,001 359 (79) A


35% Holding Mapfre Re 100.0000% 324,524 134,840 55,898 (1,603) A



Mapfre Re 99.9000% 10 10 0 (1) C






99.9998% 0.0001%

27 22 43 9 C

MAPFRE MANDATOS Y SERVICIOS S.A. Avda Figueroa Alcorta 3102,Buenos Aires (Argentina)

35% Services Mapfre Re Caja Re Arg.

99.0000% 0.9999%

127 92 606 (11) C



30% Consultancy Mapfre Re Inv.Ibéricas

98.0000% 1.0000%

46 42 85 (40) C

MAPFRE INTERNET S.A. Ctra de Pozuelo a Majadahonda s/n Madrid (España)


MAPFRE INFORMATICA A.I.E. Ctra de Pozuelo a Majadahonda s/n Madrid (España)



34% Travel Assistance Mapfre Re Hold

0.0020% 855 464 731 29 C



100.0000% 324,480 134,859 55,898 (1,603) A

REINSURANCE CORPORATION 100 Campus Drive Florham Park New Jersey 07932-1006 (USA)


100.0000% 1 1 0 0 A




99.9792%0.0208%

686 558 1,621 81 C




75.0000%25.0000%

38 38 0 0 C


17% Reinsurance Inv. M. Chile Re

97.6769% 97,704 29,894 4,433 839 A


17% Holding Inv. M. Chile Re

0.0042% 250,786 36,986 58,057 116 C


17% Property Inv. Ibéricas 31.4400% 21,284 20,495 6,212 547 C




17% Property Inv. Ibéricas 31.2900% 594 (39) 1,149 6 B



CAJA RE ARGENTINA Bouchard 547 piso 14 Buenos Aires (Argentina)


CONSOLIDATION METHOD OR PROCEDURE A Fully consolidated subsidiaries B Associated and investee undertakings consolidated by the equity method C Associated and investee undertakings excluded from consolidation

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notes to the consolidated financial statements … annual report 2006 mapfre re • notes to the...

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